When you have the money, why not pay it all with cash? That’s what most people are likely to say. Yes, paying with cash does make a lot of sense. Once you have paid the full amount, the house is yours, to do whatever you like to do with it. There’ll be no monthly payment to make and no interest rate to worry about. But is it always better than taking out a mortgage? Let’s check out.
Paying the full amount in cash
A lot of people who are financially strong enough chose to pay the full amount in cash when buying a house. Paying in cash has a number of benefits. The ownership of the house comes with none of the costs associated with mortgages. There is no legal fee, no valuation fee, no insurance fee and no interests on loan. This saves you a lot of money.
But that’s not where the benefits end. In a competitive market, cash talks louder than a mortgage. An offer to pay full in cash makes your bid more attractive to the seller because he doesn’t have to worry about your backing out of the deal in case you are denied financing. The seller may even agree to lower the price of the house or give you a cash discount.
Taking out a mortgage
Now that you know the advantages of paying the full amount in cash, you probably have a less positive view of mortgage. But that shouldn’t be the case. Taking out a mortgage has its own advantages and often be more beneficial than paying with cash.
The huge financial boost given by the mortgage allows you to buy a property that you would otherwise be not able to buy until your retirement. Even if you have only a fifth of the money that you need to buy a house, you can still buy the house because your home loan covers the rest.
Mortgage protects you from financial hardship if you do not have enough liquidity. If you have used up all your money to pay for the house and are left with no money, you may suffer financial hardships and possibly need to take a personal loan at a high interest rate. This can turn out to be costlier than if you had taken out a mortgage. This is the reason many people who buy with cash are forced to sell their house prematurely and/or with loss.
Taking out a mortgage leaves your own money free for investment opportunities. Many investment vehicles, such as stocks and mutual fund, tend to give a higher return on investment (ROI) over the same period of time than properties. With good investments, you can repay your loan with the profit and still have some more money in your bank account.
With mortgages, the real fun begins if the value of your house rises sharply after you have purchased it. If you manage to sell the house with a huge profit within a few years, it will be like a windfall. When the property market is in an upwards trend, it makes more sense to take out a mortgage than paying in cash.
These are the reasons savvy investors choose to take out a mortgage even when they are flush with cash. But, ultimately, the choice is yours. If you are going to take out a mortgage, make sure to compare mortgage loan rates in Singapore before approaching any bank.