Should You Pay Cash or Get a Mortgage?

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Traditionally, about 90% of homes are bought using a mortgage. However, in the recent competitive Ontario real estate market, more and more buyers are paying cash for Milton homes for sale

If you are fortunate enough to have the cash flow to purchase a home outright, you might think that is clearly the best option. Certainly, it will eliminate a mortgage payment, but there are multiple factors to consider.

 

Advantages of Paying Cash for a Home Purchase

The primary reason to pay cash for a home is to own the house outright. Without a mortgage, there is no fear of foreclosure or defaulting on a home loan. There is no impact on your credit score, and you can purchase even if your credit rating is poor. You will also have full equity in your home, so you would have the right to borrow up to 100% of your home’s value if needed. 

By eliminating a mortgage, you will also eliminate interest. You will save tens of thousands of dollars in interest over 20 or 30 years. 

Another advantage of paying cash for a home is giving yourself more free flow of cash. Without a mortgage payment, you will significantly reduce your monthly expenses. 

Finally, by paying cash, you eliminate all of the paperwork and fees associated with using a lender. This saves both money and time. There is no appraisal requirement, no underwriting, and no outside timeline. Typically, you can close on a home much more quickly. The ease and speed of a cash transaction makes you more attractive than buyers using a lender.

 

Advantages of Getting a Mortgage for a Home Purchase

Even if you are able to pay cash for a home purchase, it may not be the best option for you. If you are using your home purchase as an investment, it may make more sense to invest in the stock market if current mortgage rates are lower than the average rate of return. 

Taking out a mortgage also allows you to keep some of your cash to invest elsewhere. If you pay cash for a home, all of your money is locked into the home purchase. However, if you take out a mortgage, cash is required for the down payment, and you can invest your other money elsewhere. 

Having a mortgage also allows you to improve your credit score. By making timely payments over the years, you can boost your credit significantly over the long term. 

If you have the cash to pay for a home outright, be sure to weigh the benefits of cash or mortgage payments before closing.

 

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