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Most people take out a mortgage and pay off their homes over a period of time.
However, there are some buyers who may be in a position to purchase a home in cash.
You may be able to pay cash for a home and avoid having to apply for a mortgage if you have inherited money, got the sale of a previous home, or have good savings.
But here are few reasons why financing a home with a mortgage makes more sense.
1. Homes are not a liquid asset
Homes unlike stocks, are not liquid as it might take weeks or months to find a buyer and close on that transaction they can’t be sold overnight so if you have an immediate need for that money it will not serve the purpose which is why getting a mortgage would be sensible.
If you are in sudden need of emergency cash you don’t have it because it’s tied up in your home.
So instead of paying all cash for your home, if you make a good down payment and finance the remaining with a mortgage you will have a cushion to fall back on.
2. The money can be invested and yield better returns
Even if you will spending a lot of money for paying interest on the sum you borrow when the mortgage rates are low, financing a home makes sense so you can invest your money and generate a higher return.
Now as the average 30-year mortgage rate is revolving around 3%. Investing in the stock market would give you an average of around 10%.
It makes more sense in paying 3% interest on a mortgage and reinvesting to earn a 10% return over time.
3. You can get a tax break
By itemizing on your tax return, you may qualify for a deduction on the interest you pay on your mortgage.
Combined with other deductions, you could fall into a lower tax bracket, and make good savings.
Before you pay outright look at the advantages of financing.
Reference Source: The Ascent
