Should I Pay Cash for a House or Get a Mortgage?

Even with today’s low interest rates, the total amount of interest you may pay over the life of your mortgage can seem like a staggering amount. It’s one of the reasons many people set a goal to pay down their mortgages early or decide to pay cash for a house. But paying cash for a house may not be for everyone, and there are many good reason to carry a mortgage.

Under Certain Circumstances You Might Pay Cash for Your House or Pay Your Current Mortgage Off …

• You are completely debt free without the mortgage
• You want to reduce expenses as much as possible so you can put more money into your retirement fund
• You live in a country, such as Canada, where you do not receive a tax break because you carry a mortgage
• You are retired and you don’t pay any taxes on your retirement income.
• Currently, you do not receive a tax break on your mortgage interest. If your mortgage is small, your interest may not exceed the standard deduction the IRS gives non-itemizing taxpayers. Without that tax break, the actual cost of your mortgage is higher.

But for some people, paying your mortgage off early can hurt you more than help you, and purchasing with cash instead of a mortgage is not the best financial option.

Reasons to Have a Mortgage Even if You Don’t Need To….

• You have other high-cost debts. Credit card interest rates are often more than twice that of most home mortgages. Any extra cash should go toward paying off the balance of those first.
• You want more available liquid cash now.
• You are in a high tax bracket and this additional deduction would lower your income tax bracket as well as your taxes.
• You want to put money into another investment such as the stock market or additional real estate.

To learn more about the advantages or disadvantages of carrying a mortgage, read the article, “How the Affluent Manage Home Equity to Safely and Conservatively Build Wealth” .  It is slightly dated and rates have changed, but the principles of the article hold true. The best way to accurately determine if getting a mortgage is right for you is to schedule an appointment with one of our Landmark Mortgage Planners. We are trained to help you work your home acquisition into your existing financial strategy with the most financial benefit to you.

“I believe we have a great opportunity in front of us today. Interest rates are at all time lows, home prices have more or less bottomed out, and most people can buy for less than their current housing expense, getting a better quality home.”