Buying A Home With Cash Versus Low Interest Rate Mortgages

November 18, 2020
Last updated:
April 6, 2022
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Mortgages and home loans can be intimidating if you have never applied for them before. But a trusted lender can help guide the way. Alternatively, if you are one of the lucky ones, you are able to pay cash for your new home, which is great. However, just because you can do something doesn’t necessarily mean you should.

The real estate market has been in flux during the past few months. As a result, this could be a great time to both buy and sell a home. This is because mortgage rates are attractive for borrowers right now. With so many people who are looking to buy a home, it is likely the people selling a home are going to receive multiple offers. On the other hand, given what the mortgage market looks like right now, borrowers also have attractive options.

As a result, many people are wondering if they should buy a house with cash or take advantage of low interest rates. For homebuyers in this position, there are a few important points to keep in mind.

Consider What The Cash Can Do

A decision to buy a house with cash or taking advantage of low interest rates is going to be a personal decision. At the same time, there are several factors to consider. One of them involves what the cash is going to be used for. For example, many people have heard the saying that cash is king. Buying a home with cash versus with low interest mortgages may be right for some people.

On the other hand, there might be some individuals or families who can put this cash to better use elsewhere. For example, if this cash is needed to buy a new car, fund retirement, or pay for someone’s education, then the cash might be better spent in this area. It is important to think about how this cash will be spent when deciding whether or not to use it to buy a home.

The Competitiveness Of A Cash Offer

It is also important to consider the advantages of buying a house with cash. In addition to the obvious benefit of not having a mortgage payment, a cash offer is also going to be seen as more competitive. With so many people looking to buy a house right now, it is critical for homebuyers to appear competitive right off the bat.

A cash offer is always going to look better than someone who is trying to take out a loan because the transaction is simpler, faster, and provides the seller with an instant source of liquidity.

Pros and Cons to Cash

Obviously, there are some advantages to buying a home with cash versus low rate interest mortgages. Besides making you more of a competitive home buyer, you also save on interest and closing cost, plus your credit score, along with lender income requirements, no longer matters. Speaking of closings, they also tend to move along quicker with cash, and when all is said and done, you own your home outright. That said, no good deed goes unpunished when it comes to paying cash.

For instance, when opting to pay cash for a new home, you are tying up a lot of money in one asset, and if you know anything about portfolio diversification and have heard the old adage—don’t put all your eggs in one basket—then you know better. In addition to making a risky investment move, buying a home with cash versus low interest rate mortgages means you have decreased your liquidity. Yes, while making the seller happy and liquid, you left yourself in a precarious situation.  What’s more, you lose your leverage, miss out on tax benefits, subject yourself to less return on your investment, and, ultimately, end up making yourself house rich yet cash poor.

Today’s Mortgage Rates

Pros and Cons to Low Rate Mortgages

Yet, when it comes to purchasing a home with a low rate mortgage, we see many benefits, including the ones that paying with cash seems to lack. For example, when you finance a home, you are putting less money upfront, creating opportunities to save, qualifying for tax benefits, and improving your credit score. Thus, as you can see, low rate home loans or mortgages can be a good thing. Moreover, rates are lower than they have been in decades, and inflation will likely make your future mortgage payments cheaper.

Nevertheless, there are some downsides to financing your future home. One of the major cons here is, in fact, paying interest. No one likes having to pay interest. Plus, when you think about it, qualifying for a home loan, followed by a complex mortgage process is not always a good time either. With financing, you are also responsible for lender fees, closing costs, and mortgage insurance premiums. Plus, when it is all said and done, you do not own your own home, not quite yet anyway. These are a few important points to keep in mind when deciding how you are going to purchase a home.

Deciding Factor

Though it may be tempting to save yourself from interest, closing cost, and more, you may not be able to afford to buy a home now with cash in the long run. The good news is no one says it has to be one or the other. Rather you can put up a significant down payment and a mortgage loan. Similarly, you can pay for a portion of your home in cash and finance the rest. Thus, at the end of the day, you can find a way to have the best of both worlds, or you can choose to simply finance. Ultimately, the goal here is to buy a home without spending all the money you have.

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Ready to Apply For a Home Loan in WA, OR, CO, or ID?

Are you curious about mortgages, or are you ready to apply for one to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.

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