Should I use all proceeds from my current sale or take a small mortgage and keep some cash in reserve?
Answers | 2
This is one of those financial strategy questions. If you own a property clear, you're not paying any interest - which is good. From a finance perspective, you've effectively stuffed a coffee can full of cash and buried it in the back yard. It's not earning you any return. At least with the coffee can if something happens and you NEED the money, you can go dig it up. Not so with equity in a home. Banks are people that lend you an umbrella when it's sunny and want it back when it rains. If you 're in a "wealth building" era of your life, it's best to leverage intelligently and invest the same way. Talk to a financial advisor about developing a strategy that serves your mission. Good Luck!
You get get biggest bang for your buck by putting 20% down on a home. This alleviates the need for mortgage insurance and keeps your rate very low and therefoer your payment low also. I would suggest you have 6 months of reserves at all times. That means 6 months of all of your payments that you have to make on a monthly basis. Include everything you spend money on in this number. Once you have that then getting to the 20% equity position is a great idea. Anything more that 20% down would be a secondary strategy. Perhaps an investment strategy paying higher yield than what you pay as an interest rate would be a great strategy. Remember that your mortgage interest is typically tax deductible so if you are paying a 4% rate it can be seen as even lower since the interest you pay is subtracted from your gross income and therefore depending on your tax bracket your true cost of interest is lower.