There are many reasons why you don’t want to pay for your house in cash. Most of us cannot afford to do so but there are people buying houses in cash. In many cases, you want to consider taking out a loan even if you can afford to pay full in cash.
1. Opportunity cost: When you pay for a house in cash, you are tying up a significant amount of money in a non-liquid asset, which may limit your ability to invest in other opportunities that could potentially provide a higher return.
2. Liquidity: While a house is a valuable asset, it is not a liquid one. If you need access to cash quickly for unexpected expenses or investment opportunities, it may be challenging to sell the house quickly to raise funds.
3. Diversification: If you put all of your available cash into a house, you may not have any funds left to diversify your investments across different asset classes, which can help manage risk and increase the potential for long-term growth.
4. Interest rates: If mortgage interest rates are low, it may make more financial sense to invest your cash in other assets and use a mortgage to finance your home purchase, especially if you can earn a higher return on your investments than the interest rate on the mortgage.
5. Tax benefits: Depending on your individual tax situation, you may be able to deduct mortgage interest and property taxes from your income taxes, which can reduce your overall tax burden. By paying cash for your house, you may miss out on these tax benefits.
If you are looking to retire early, one of the key metrics you would be tracking is savings. If you are going to pay for your house by taking cash out of your savings, you could be setting yourself back. Yes, the net worth may not change as it can include the value of the house. However, you don’t have cash available with you. Even worse, you are missing out a chance to invest. There is no guarantee that your investment will grow as much as your house value but it is good to diversify your investment.