In order to purchase a home, most people rely on financing. But, there are some people who have the requisite cash funds, to make a cash deal. There might be several reasons, about how they can afford such a huge amount of money. They might have sold another property, or the property they are buying is relatively inexpensive, or they may have lots and lots of liquid assets.
While some experts may advice to reduce debts, there are many forms of debts which are actually pretty advantageous, like a mortgage. Let us see in this article the five advantages of carrying a mortgage.
Opportunity Cost of Money
This is a very know term, and everybody has heard this term. Despite hearing this term again and again, people either fail to realize the true meaning of the term, or start feeling that this is not for them. It really doesn’t make sense to maintain your finances and invest them elsewhere just to take out your mortgage. Especially, on the standpoint we are standing, where the mortgage rates are still in the vicinity of historic lows, why would you pay off your mortgage. Moreover, it makes more sense to diversify your portfolio to position yourself for a brighter financial future. Well, many factors constitute to this decision, such as, personal situation, expectation, age and obviously future needs. However, it is important to keep in mind, “opportunity cost of money”.
Presently, if you are paying 5.0% as your mortgage rate, and you are also actually paying quite a bit less due to the tax considerations, and you believe that over time, you can invest and generate more from it, doesn’t a mortgage makes sense?
Obviously, if you aren’t sure, you can always add additional paybacks to your monthly payment on a bulk or make a larger down payment at the start, and still, you can enjoy some of the benefits of mortgage Page Design Shop.
Since mortgage is tax deductible, and has a lot of advantages if you are a good tax paying Samaritan, it costs a lot less than any other form of loan. If you have a mortgage, cut your other debts to non-deductible, higher interests. Therefore, even if you are in a tax bracket of 30%, you are paying a 3.15% mortgage, where, on the contrary your mortgage rate is 4.5%.
When you take a mortgage from any of the lending institution, they will charge you and make an escrow account, for paying up the real estate insurance and taxes. You basically do not have to worry about the tax payment or the insurance, because your escrow account will take care of it, and on the positive side you will also receive a dividend from it.
You can Pre-Pay anytime
People who take mortgages often ask that, what mortgage period should they take, the 15 year or the 30 year. Experts say that, people should always take the longer term when it comes to mortgages. They should pay small monthly interests, and whenever they want, they can make principle payments.
If you are planning to buy a new property, understand the mortgages, and the options that you have got. Do whatever makes the most sense to you!
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