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Why You Should Take A Property Mortgage Even If You Have The Money For A Cash Purchase

14 March 2017

Mathéo Gerard

Many people assume that it's always best to buy a home in cash, as opposed to taking out mortgage loans, if they have the money. However, that isn't always the case since each of these options has its pros and cons. Here are three reasons you shouldn't dismiss the mortgage option:

A Mortgage Is a Cheap Loan

As far as long terms loans go, a mortgage is one of the cheapest (probably the cheapest) money you will ever get. The fact that the lender can repose the property if you default on your mortgage means that mortgages are low-risk investments (from the lender's point of view). Therefore, the lender can offer you a low-interest rate without worrying too much about it. Where else can you get long-term loans with sub 5% rates?

It Allows You to Make Bigger Investments

Everybody wants to invest, but nobody has limited investment capital. By using a big percentage of your money to buy a house, you are reducing the amount of capital you can invest. You can avoid that by taking a mortgage so that you can use your savings for investment instead (assuming you can afford to pay back the mortgage). Even the legendary Warren Buffet isn't averse to this kind of reasoning. Even if you don't want to invest the money, you can just leave it in your bank account to act as your security for a rainy day.

You May Make Money by Leveraging On the Mortgage

If you buy a house on a mortgage and it appreciates, it's like using borrowed money for an investment that pays handsomely (this is every investor's dream). Take an example where you buy a house for $400,000 by putting down $100,000 and getting the rest on a mortgage. If the house's value shoots up to 480,000 after some time, it's like making an $80,000 profit by investing $100,000 (the actual money you invested). Contrast this with another person who bought a similarly priced property in cash; if their property appreciates with the same percentage after the same period, they shall have made the same profit ($80,000) by investing a whole $400,000.

Therefore, don't think that it's always best to buy real estate property in cash if you have the money. Analyze your situation carefully before taking one route or the other. Besides, if you aren't exactly rich, going the mortgage way may allow you to purchase a bigger house since you will be able to put down a big down payment. For more information, contact companies like Weyco Community Credit Union.

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