3 Benefits of Getting a Mortgage -- Even When You Can Afford to Buy a Home in Cash

by Maurie Backman | Published on Sept. 13, 2021

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A man and woman touring the bright living room of a home with their realtor.

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Here's why financing a home makes sense, even if you have the cash for it.

Most people who buy homes can't afford to purchase them outright. Rather, they need to take out a mortgage and pay off their homes over time.

But some buyers may be in a position to purchase a home in cash. If you have money from an inheritance, the sale of a previous home, or even a healthy amount of savings, you may be able to pay cash for a home and avoid having to apply for a mortgage altogether. But even if you can buy a home outright, here's why financing it with a mortgage makes sense.

1. You won't tie up too much money in an illiquid asset

Liquid assets are easy to exchange for cash. Stocks, for example, are pretty liquid. You can decide to sell one, and bam -- you get cash right away in exchange for the shares you unload.

Homes, on the other hand, are less liquid. You can't sell a home overnight. It could take weeks or months to find a buyer and close on that transaction, which isn't great if you have an immediate need for that money.

That's why getting a mortgage makes sense. You may be able to afford a $300,000 home in cash right now. But what if you suddenly need $50,000 and you don't have it because it's tied up in your home?

Imagine that instead of paying $300,000 for your home, you make a $100,000 down payment and finance the remaining $200,000 with a mortgage. That means you have a $200,000 cushion to work with.

To be clear, most people don't need to keep $200,000 on hand in cash. The point, however, is that mortgaging a home gives you more financial flexibility.

2. You might make more money investing

The downside of taking out a mortgage is having to pay interest on the sum you borrow. Over time, you could end up spending a lot of money.

But when mortgage rates are low, which is the case today, financing a home makes sense because you might be able to invest your money and generate a higher return. As of this writing, the average 30-year mortgage rate is a little over 3%. Meanwhile, the stock market's average over the past 30 years has been around 10%. Paying 3% interest on a mortgage could make a lot of financial sense if you invest the money you free up and it earns a 10% return over time.

3. You can enjoy a tax break

If you itemize on your tax return, you may qualify to deduct the interest you pay on your mortgage. That, combined with other deductions, could bump you into a lower tax bracket, resulting in major savings.

Paying cash for a home has its benefits. First, you don't have to deal with the mortgage application process, which can be cumbersome. And, in today's housing market, you're more likely to get an offer on a home accepted if you come in as a cash buyer. But even so, there are benefits to getting a mortgage even when paying cash is an option. Before you plunk down a pile of money to buy a home outright, consider the upside of financing it instead.

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