Local Real Estate Comments and Ramblings

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Should I pay cash or get a mortgage?

“I was going to pay cash but my financial adviser said to get a mortgage …. I need the tax breaks”

 

OK, I’ll admit that I don’t have this conversation very often since most of my buyers do not have the choice to pay all cash for their next home.  But I have in fact had the conversation a few times.

 

Not too long ago I had a client who brought up exactly this point. We had an accepted contract on a bank owned home in which the buyer had made an all cash offer.   

 

The client wanted my advice and wanted to know if they could go ahead and get a mortgage even though they had offered cash.

 

First of all, yes they could obtain a mortgage if they chose to.  The fact that the offer was all cash doesn’t mean they can’t get a mortgage.  However it does mean that if there would have been any glitches in obtaining the mortgage the seller didn’t care.  The buyer would still be expected to close as contracted.

 

But the real question is why would somebody want to get a mortgage when they could pay cash instead?  The answer of course is those mysterious tax advantages.  So I asked the client a series of questions.  I am a big fan of Dave Ramsey so I was pretty familiar with the questions.

 

*Your last home was paid off or nearly paid off before you sold it.  Did you feel compelled to go get a mortgage to go in to debt on that home?   No

 

*If you were to get a $100,000 mortgage on this new home at today’s rates you pay about $5000 in interest.  If you are in a 30% tax bracket you’ll save about $1500 in taxes.  Is it worth going in to debt $100,000 to save $1500 per year?  No

 

*Is worth paying $5000 a year to the big monster mega bank mortgage company to avoid giving $1500 to Uncle Sam? No

 

*(this was my favorite ..) If you gave $5000 to your favorite charity instead of to the big monster mega bank mortgage company wouldn’t get exactly the same tax break? Yes

 

OK so I’m financial planner or adviser, I’m just the guy you hired to represent your best interests on your home purchase. I don’t really understand why it would be better to go in to debt instead of paying cash!  Ultimately the decision is yours but I think your adviser needs to give you a good explanation of why you should get a mortgage.

 

About an hour later they called back.  We decided to go ahead and pay cash for the house.

 

Under our current tax codes we are allowed to deduct our home interest from our income. But that doesn’t mean we should go in to debt just to get a tax break. And this doesn’t only apply to paying cash.  How about paying it off early or getting a 15 year mortgage?

 

That’s my opinion, How about yours?

 

Check out the Dave Ramsey Fan Group on ActiveRain

 

******************************************

Bob Southard, e-Pro, Realtor ®, Solid Source Realty, Inc. Buy a home, Sell a home, in Powder Springs, Marietta, Kennesaw, Acworth, Dallas, Hiram,and Cobb, Paulding, Douglas, North Fulton, South Cherokee, County, Ga. Call me for all of your real estate needs.

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*****

 

 


Bob Southard
Broker - Owner  Atlas Realty Service LLC #75911

O:678-439-SOLD(7653)

CALL ME DIRECT: 770-656-9134

Buy a home, Sell a home, in Powder Springs, Marietta, Kennesaw, Acworth, Smyrna, Dallas, Hiram,and Cobb, Paulding, Douglas, North Fulton, South Cherokee, County, Ga. Call me for all of your real estate needs.

Visit my website

www.AgentBobSells.com

 

Contact Agent Bob

Call me for all of your Real Estate needs

678-439-7653

Copyright © 2008,2009,2010,2011,2012,2013,2014,2015,2016,2017 By Bob Southard, All Rights Reserved

 

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