Buying A Home - Mortgage Vs Cash

A common piece of advice which people usually give is that never to go for debt transactions.

Thus, many people often consider expending savings in the form of liquid money (cash and marketable securities).

However, the decision is not quite so simple when choosing between mortgage or a home loan as compared to an outright cash buyout.

Mortgage:

 

  • The option of financing the purchase can also be a great option. At the outset the common is usually cash strapped when it comes to such a big outlay. Further, for even those who may manage the funds, the opportunity loss and consequently cost from the cash getting blocked can be eventually a loss.

 

  • Buyers who opt for the cash option should look for keeping aside plenty of money for possible outflows for renovations and repairs. This so because factors like individual credit score as well as value of the property will determine the loan value against the home.

 

  • Further, for those who can plough back the money for the sizeable investment, better returns usually come from spreading the funds across a number of properties.

 

  • Mortgage is also preferable due to the tax savings from interest outlays.

 

  • Mutual funds and the securities market are providing great prospects with the new government doing wonders. Hence, it might be advisable to invest at a higher rate and get a loan for purchasing your home. The difference between the mortgage rate and rate of return on these investments factored in with time value of money will provide sizeable returns.


Cash buy:
 

  • While investing the funds across properties sounds logical, it may also mean that the rental income may be absent for a period from a property but the outlay for mortgage would still have to be borne.

 

  • There is also a lot of consideration on the mortgage rates which private players keep hiking from time to time. Hence, when evaluating the comparative options of a buy to let and mortgage, one may end up getting short changed.

 

  • A cash buy would mean far less paper work and administrative hassles of running from one financial institution to another to ensure that the best deal on offer is being secured.

 

  • It saves the buyer from the hassle of going through the hurdles of stringent eligibility criteria.


It is thus advisable to determine which mode will be more suitable to your financial goals – both short term and long. Further, one must remember that real estate is an illiquid venture and true value can only be determined for it at the time of sale.

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