While few people can afford to pay cash for the roof over their heads, if you find yourself in this position it is important to weigh the pros and cons carefully. While the idea of not having a mortgage is certainly attractive, a number of other factors must be considered.
Not having a mortgage is a huge advantage and perhaps the best reason to buy your home for cash if you can afford to do so. The simple fact that you do not have a mortgage payment frees up that cash for other purposes, including saving for retirement and setting up a college fund for the kids. Not having a mortgage also means that you will never have to worry about losing your home to foreclosure or owing more on your home than it is worth.
Having the cash available to buy the home you want gives you an extra level of flexibility and freedom when you shop for a house. You do not have to worry about applying for a mortgage or being preapproved for a certain amount. You can deal with the sellers of the home and their agents as a cash buyer, and that may give you additional leverage when negotiating an offer and setting terms for the sale.
Lost Mortgage Deduction
If you have a mortgage on your home, you can deduct the interest you pay on that mortgage if you itemise your deductions. That tax deduction can be valuable, especially if you are in a high tax bracket. If you buy your home for cash, you give up that mortgage deduction, and that can mean a higher tax bill year after year.
If you have all of your free cash and investment capital tied up in your home, you do not have those funds available to invest elsewhere. That means you could be missing out on investment opportunities that would pay you far more than the interest you are saving by not having a mortgage. Buying a home for cash can be a smart move, but it is a good idea to look at your entire investment portfolio and make sure you will still have the cash you need for emergencies, as well as extra money to invest for the future.
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