Question: I am currently selling my lifelong home and downsizing to a condo. I will make enough from my sale to pay for the condo outright. Some people have told me “It’s freeing to live without a mortgage.” While others say, “It is financially beneficial to have a mortgage.” What should I do?
Answer: Home buyers run a gauntlet of professional opinion givers, who are specialists only in their field. For example, a mortgage originator will proclaim 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 with cash. Always check the source of your advice.
It is true that there are tax benefits in being able to write off mortgage interest payments. At the end of the year, this write-off may drop you down a whole tax bracket, or even offset your taxable income.
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 5.5% interest rate on your mortgage can be offset by investing the sale proceeds properly to earn a similar rate.
However, owning your home absolutely can provide sweet mental and emotional freedom. I have not felt such freedom, but most of my senior clients will never go back underneath a mortgage again. Also, in this wild, competitive home buying environment, you will jump near the front of the pack as a “cash buyer.” You also will save a few thousand in lender closing costs. Heck, you can always get a mortgage later, if you’d wish to.
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. Your heart will lead you in the right path.
This article was originally published in the Lowell Sun and is for informational purposes only and not to be relied on as legal advice, in any manner.