To Mortgage or Pay Cash? #PropertyInsights

May 14, 2015
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, If you can afford it, paying cash for your house is an excellent option. Imagine not having to live with a mortgage payment hanging over your head. But then again, not all of us are accorded this luxury, hence why the mortgage option is available for consideration. While mortgaging does have its advantages, it’s also comes with shortfalls. After identifying the house of your needs, should you consider a mortgage or cash?

To help you make an informed decision, here’s the pros and cons of both options

mortgage

Mortgaging.

The long and short of a mortgage is that you borrow money from the bank to buy your house and pay it back over a period of time with interest. When you agree to a mortgage you’re signing a legal contract promising to repay the loan plus interest and other costs. Your home is collateral for that loan. If you don’t repay the debt, the lender has the right to take back the property and sell it to cover the debt, a process known as foreclosure.

Pros.

Home ownership is affordable – The mortgage you take out will be your largest debt, and you will pay it back over a period of time, making monthly payments that are affordable.

Cost Effective – Interest rates are a lot lower than any other form of borrowing because the loan is secured against your property.

Cons

You’ll pay back a lot more than you originally borrowed. Although the monthly payment may seem reasonable, the total amount you will have paid after the duration of the loan will turn out to be much more. This is because you are carrying a large amount of debt over a long period of time.

Danger of Foreclosure – The downside to this is that, there is the danger of the bank repossessing your house should you default on payment, that will leave you out on the street, which is not a good thing.

Cash Payments.

Buying a house in cash is more convenient if you have a lot of cash lying around. It is a one – off expense and you will not have monthly payments to make to pay off the debt. You also avoid paying so much money worth of interest in amortized mortgage.

Cons


You are only limited to spend the amount of liquid cash that you have. That means that 50 Million Shilling House you spotted, you will have to live without. Make sure you have enough money to last you a while so you don’t’t end up being house-rich but cash–poor.

At the end of the day, you are buying the house of your dreams, and you have to make the choice that is economically sound and works best for your finances.

Get more property insights from Pam Golding.

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