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Summary: If you have the cash to pay for a home in full, should you? Or is it better to take out a mortgage? We’ll discuss this in this article.
Mortgages make buying a home a possibility for most consumers. Considering the sky-high cost of homes in Oregon these days, most consumers simply don’t have the liquid cash readily available to pay for a home in an all-cash deal.
That said, some do, especially after having sold a previous property in Portland, Eugene, or Salem where the proceeds of the sale exceed the cost of purchasing another home.
But even though the cash funds might be readily available to cover the cost of a home purchase in full, does it make sense to plunk down so much money all at once in a real estate deal? Or does it make more economical sense to leverage the funds through a mortgage?
Some might say that taking out a mortgage would make little sense if the cash is available to buy the home outright, especially when considering the interest rates and fees associated with home loans.
But is there a strategy that makes mortgaging a home purchase a better choice as opposed to buying a home with cash?
Let’s examine both situations to determine which option makes more sense.
Even though we’re still in the midst of a low interest rate environment these days, any interest paid on a loan might seem like a waste of money. Even the lowest rate can cost tens of thousands of dollars in interest over the life of a loan.
For instance, let’s say you bought a home for $500,000 with a 30-year, fixed-rate mortgage and a 4.0% interest rate. Assuming that you put $100,000 down, you would be spending $284,746.93 over the life of the entire loan in interest.
Sounds like a lot of money, and it is. And that’s in addition to the fees that typically come with mortgages. So, in this case, it might sound like it makes more sense to avoid paying these costs and simply pay for an Oregon home in cash, if the funds are available for such a purchase.
Sellers love seeing all-cash offers. They tend to look more favorably on these types of buyers because they don’t have to go through the trouble of waiting around to see if the buyer is able to secure a mortgage. The deal can go through faster with fewer hiccups.
All-cash deals can certainly streamline a real estate deal and help everyone involved move on quicker. In a particularly heated seller’s market, buyers need to come up with all the stops to beat the competition, and being capable of buying a Portland home in all cash is certainly a good way to do that.
Having no debt sounds amazing, and it is, especially if you hate the idea of expensive debt bills every month. But as a buyer, an all-cash offer on a home in Eugene might come with some drawbacks. There may be situations where it might make more sense to mortgage a home purchase.
Leverage is an amazing tool that comes with real estate. For a relatively small amount of money, you can purchase a much higher-priced asset in comparison.
For instance, with $100,000, you can own a home in Salem that’s worth $500,000. You can even theoretically own that home with a lot less than $100,000, as long as your down payment amount is no less than 5% of the purchase price.
A full-cash purchase means you forgo the power of leverage that real estate offers and wind up tying up a huge chunk of money into one asset.
Of course, you can always sell the home in order to free up your capital, but real estate investments aren’t exactly very liquid. It’s not like being able to withdraw money from your bank account.
Selling real estate makes a lot of time, effort, and money. You’d be lucky to get your hands on that cash in less than a month.
With leverage, you can invest in a valuable asset that is almost guaranteed to increase in value over time. There are very few types of investments that can provide you with that type of offer. Relative to other investments, real estate tends to yield better returns.
Many wealthy individuals who have more than enough money to buy an Oregon home in cash still take out a mortgage to finance a property in order to keep much of their capital available to invest elsewhere.
Let’s say you had $500,000 cash available to buy a home. Rather than sinking it all into one house, you could potentially purchase a few properties by using that money for down payments on more than one mortgage.
In this way, you can expand the reach of your capital instead of limiting it to just one asset. That’s the power of leverage.
Before you decide whether to mortgage a home purchase or make an all-cash offer, there are some personal and financial factors to consider. You need to assess your appetite for risk, your ability to make regular mortgage payments (especially if interest rates increase in the near future), and whether or not you want to keep your capital in a liquid state.
Armed with this information, find out exactly how much it’s going to cost you to take out a mortgage.
It might even make sense to leverage a smaller portion of the home purchase and put a big down payment towards it. For example, you could pay 50% of the purchase price of the home and mortgage the rest. This way, you can still take advantage of the power of leverage while keeping a lot of your money freed up for other investments.
There are definitely some pros and cons to buying an Oregon home with all cash, just as there are some perks and drawbacks to taking out a mortgage. At the end of the day, you’ll want to carefully assess what your short-term and long-term goals are, what your financial situation is like, and how much of a risk you’re willing to take.
Do you need a mortgage to finance a home in Oregon? We can help. At Sammamish Mortgage we’ve been helping buyers across the Pacific Northwest obtain the mortgages they need to make their dreams of homeownership a reality since 1992. We offer a variety of mortgage programs in Washington, Oregon, Colorado, and Idaho. Call us to get started today!
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.