You may have recently sold a property and have yet to buy a new one. Or you’ve simply been able to earn and save and now you find yourself in the enviable position of being able to pay cash for a property. Either way, you’re ready to be an all-cash buyer. That sounds great, right? After all, most buyers are competing with cash offers, so at the very least, you’ll be competitive. While it may be hard to believe that there could be a downside to buying a property outright, there are a few things to consider. But first, let’s consider the advantages of paying all cash.
Interest rates are low right now, but they’re still not all the way down to zero. Being able to avoid financing altogether could save you tens of thousands of dollars – if not more – over the years.
No Closing Costs
This is another major area of saving. Lenders will usually charge thousands of dollars in closing costs. The application fees, underwriting fees, and mortgage insurance really add up.
Peace of Mind
Your property is completely paid for. Whatever financial hardships, job loss, or other issues you could face in the future will not have the power to force you to move. You’ll never have to worry about making another mortgage payment as long as you own this property.
While it’s difficult to imagine that there would be any drawbacks to being an all-cash buyer, here are a few things to keep in mind.
If you bought your property outright and were ever in a situation where you needed to free up some cash, you’d be more likely to need a home equity loan. Home equity loans tend to have higher interest rates than traditional mortgages. Also, you would need to pay the closing fees you’d avoided earlier by paying cash. While this is a hypothetical situation, it’s not an uncommon turn of events with all cash buyers.
Missing out on tax deductions
One of the best advantages of having a mortgage is being able to deduct the mortgage interest on your taxes, but homeowners who pay all cash wouldn’t be able to benefit from this deduction.
Reduced investment capability
If you were to pay all cash for your property, your ability to buy an investment property or properties would be severely curtailed. If you can’t reap the benefits of passive income or grow your finances, that’s a pretty substantial sacrifice.