Full Payment Home Purchase vs. Home Loan

Many of my clients (especially Baby Boomers who are downsizing or relocating) ask me if they should pay the full amount for their next house or finance it with a new loan. While the idea of owning a home free-and-clear is certainly appealing, I always present them with a series of questions to help them clarify the big picture.

Perhaps you or someone you know may benefit from these as well:

How much will you be left with after a full amount purchase? Maintaining a safety net of three to six months’ worth of living expenses can be a real comfort after you’ve done well on the sale of your home. How comfortable will you be if a full amount purchase brings you near zero?

Are you retiring soon? This goes to two issues: First, whether or not the absence of a loan will significantly improve your monthly position, keeping in mind you’ll still need to make insurance, tax payments, and maintenance. Second, if you’re thinking about applying for a loan. It can be a challenge to qualify for a loan after you’ve retired, so if you think you’ll need a loan, it may be better to get it in advance.

What’s your tax and income situation look like? For some people, the loan interest deduction on income taxes has a significant impact on their annual tax bill and overall cash flow picture. It’s always a good idea to consult with a financial professional before you “write off” the write off.

Might you need to help someone out in the near future? Sometimes having the liquidity to help family members or close friends in need is important. Are you planning to help someone else with a down payment on a home? Is it likely you’ll have to help a close friend or relative through a tough time? Having cash on hand can be a comfort. 

How important is “free and clear” to your mind? For some, there’s nothing that compares to the idea of owning a home free and clear. Sometimes the feeling of “no debt” simply can’t be overpowered by tax or liquidity benefits. It’s important to be honest with yourself, and if you’ve always dreamed of dodging a house payment, it could be the right emotional move.

For all of these reasons and more you’ll want to choose wisely before you go in for a full amount purchase of your next home. Naturally, if you need any help selling your current home or looking for the next one, I’d be happy to help:

Credit :  +Ramprasad Padhi 

Mumbai Properties