If you are in the market for a new home, you most likely will get a loan to finance the purchase. However, what if you already have the cash or other resources available to help you make the purchase without getting a mortgage? Let’s take a look at some good reasons to get a home loan even if you don’t need one.
Put Your Money In the Market Instead
Let’s say that you have $100,000 that you could use to purchase a new home. Instead of buying the home, you should put the money into an index fund or some other asset that is going to keep pace with the overall market for the next 10, 15 or 30 years. At an average return of 7 percent, your $100,000 will grow to $750,000 in a span of 30 years. This is far more than what you will ultimately pay in principle, interest and other fees on your mortgage.
Get Tax Breaks From Your Mortgage
If you have a mortgage, you may be able to deduct the interest that you pay on it from your taxes. That means that you could potentially increase your refund by hundreds or thousands of dollars a year. This means that you have more money to put into a retirement account to compound over time or extra money to keep in the bank in case of emergency. When it comes time to sell your home, you don’t have to worry about paying capital gains taxes on the first $500,000 of profit assuming that the property is your principle residence.
Mortgages Can Be Specifically Tailored to Meet First-Time Buyer Needs
Those who are buying their first home may find that a first home mortgage can provide favorable terms. In some cases, it may not be necessary to come up with a down payment or even have money to pay off closing costs. They may be paid by others as a gift to you, which means that you could get that money with no expectation that it is repaid. Depending on your income and other variables, you may be able to get an FHA or other first-time buyer loan even if you do have money in the bank that could be used to buy the home with cash.
Purchasing a home is a major decision that can have ramifications both now and into the future. Therefore, it may be a good idea to take some time to weight the pros and cons of paying for a home in cash versus getting a mortgage. Even if you don’t like the idea of being in debt for 30 years, it may be the smarter play overall.