If I can afford to pay cash for a condominium from my savings and borrowing money from my parents, am I better off than getting a mortgage?
Answers | 1
One: Is the tax bracket you are in, can you deduct the mortgage interest if you got a mortgage?
Two: What rate of return can you get with the cash if you invested it elsewhere?
Let's do a quick example:
Say you make $50,000 and are in a 30% tax bracket.
You get a $150,000 mortgage at 4%.
Your effective rate on the mortgage after deducting the interest is about 2.8%.
If you can invest at a higher return than you are spending in interest on the mortgage then you are ahead.
The other thing to take into consideration is cash is king in this world. You can have cash in an emergency. You can have cash in case a good value pops up elsewhere. Etc.
On the other hand there is a peace of mind knowing you don't have a mortgage payment.
At the end of the day you have to do what makes you most comfortable. If you have any other questions or want to discuss further you are welcome to contact me.