Question: I am selling my lifelong home and downsizing to a condo. I will make enough from my sale to pay for the condo outright. Some people tell me “it’s financially beneficial to have a mortgage”. Others say “its freeing to live without a mortgage”. What should I do?
Answer: Home buyers run a gauntlet of professional opinion givers, who are specialists in their field, only. For example, a mortgage originator will tout the tax benefits of a mortgage, and downplay the alternative financial freedom. A real estate broker may argue to increase your offer’s attractiveness, by paying cash. Always check the source of your advice.
It is true, there are tax benefits in being able to write off mortgage interest payments. At the end of the year, this write-off may offset taxable income, or even drop you down a tax bracket.
Further, by preserving your sale proceeds, you may be able to invest the money at a rate of interest sufficient to offset your interest payments. For example: a 4.5% interest rate on your mortgage can be offset by investing the sale proceeds properly to earn a similar rate.
However, owning your home outright can provide sweet mental and emotional freedom. I haven’t felt such freedom, but most of my senior clients will never go back underneath a mortgage, again. Also, in this competitive home-buying environment, you will jump near the front of the pack as a “cash buyer”. You will save a few thousand in lender closing costs, as well. Heck, you can always get a mortgage later, if you wish.
So, like most of the major decisions in your life to this point, get advice, be skeptical of the source, and ultimately follow your heart.