According to research, the average fixed mortgage rate in 2020 was approximately 3.62 percent, which begs the question:
Should you bother getting a mortgage, or just buy with cash? It can be hard to understand the different home finance options available when buying a house.
But don’t worry. Keep reading as our guide explains the two most common finance options – buying a house in cash vs. mortgage.
Benefits Of Buying With Cash
One of the biggest benefits of buying a home with cash is that there aren’t any monthly home mortgage payments to deal with. You can put your money to use wherever you want, like paying down debt.
Another advantage is lower interest rates on loans and credit cards.
Once you pay for a big purchase like a house in full, it increases your credit score which will help you get approved for other loans at low-interest rates. This can save you hundreds if not thousands of dollars over time.
In addition, making an all-cash offer gives you more negotiating power during contract negotiations compared to making an offer contingent upon getting financing from a lender.
Another benefit is if you are planning to move again soon. If you only plan on living in the house for a short amount of time, it doesn’t make sense to tie up your money in monthly mortgage payments.
You can always sell the house at any time with Wake County Home Buyers and pocket all of the equity that has accumulated over time.
Although this comes with more responsibility because you will need to find another home to live in.
Pitfalls Of Paying Cash
One downside is that it costs money just to own a home outright. It might not seem like much but there are additional tax considerations along with closing fees and down payment requirements.
You also lose out on some tax benefits of buying a home with a mortgage.
Another downside is that your money is tied up in one place. If you need your cash for an unexpected situation, you will have to make the difficult decision of selling the house at a low price.
Although purchasing a home with cash might save on interest over time compared to paying off a mortgage, there are some initial drawbacks since it can take longer to accumulate any equity.
Benefits Of Having A Mortgage
One benefit is that you can deduct your mortgage interest from your taxes every year. This helps offset the cost of borrowing money for the house purchase.
Another benefit is, if you plan to live in a home for several years, it’s worth paying more interest on the loan over time since you are effectively investing in equity.
Pitfalls Of Paying With A Mortgage
The main pitfall is that if something unexpected happens, your savings could be at risk. If you lose your job or have another emergency event requiring large sums of money, you’ll need to cover the extra payments.
This is one reason why having an emergency fund is important. Another pitfall with paying interest on your loan is that it takes longer to build up equity.
Buying A House In Cash Vs. Mortgage: What Should You Choose?
Whatever finance option you choose when buying a house in cash vs. mortgage, depends on several factors. These factors include how long you plan on staying, the current interest rate climate, etc.
Want more articles like this? Check out our blog!