22 Mar
Should I Pay Cash for a Home?
Posted March 22nd, 2008 | View Comments
Infuriating pat answer: it depends.
I have had clients in the past who have paid cash for homes, especially investors. But I think you need to look at all aspects of the question to get the right answer to this one. For one, how does it help you to pay cash? Are you one of those people that doesn’t want a mortgage at all? There is a serious drawback to this if you intend to live in the home yourself: you won’t get to deduct your mortgage interest on your taxes. In fact, even if you are an investor, mortgage interest on your rentals may be tax deductible. Check with your tax accountant the next time you drop in before you make this decision.
On the other hand, paying cash for a home has its advantages of course. As a homeowner, you don’t have the pesky (large) bill every month, you will save a ton of money in mortgage interest and there’s the security that whatever happens no one gets to throw you out of your house. It’s yours, free and clear. As an investor, it can mean a higher cash flow every month from the rent as opposed to if you were still paying a mortgage on the property.
Consider all options before you decide. And realize it doesn’t have to be either-or. You can make a larger down payment on the house and keep the rest for security. Personally, I don’t like socking too much money away in one place, but that’s just me.
