In today’s housing market, you will hear many stories of people losing their homes to cash offers. If you find yourself in this situation, you may bemoan the fact that you are not rich enough to buy a house without renting mortgage to finance it. But in reality, getting a mortgage makes a lot of financial sense, so much so that even rich people love to use it. Here are some of the reasons wealthy people finance their homes, even though they can afford to buy them outright.
1. They like flexibility.
Real estate is a rather illiquid investment. This means that converting a house into a pile of cash is not something that happens quickly. You need to list the house, find a buyer and wait for the deal to close, which can take weeks if not months.
Stockon the other hand, they are more liquid investments, because they can be sold at any time, at which point you can immediately receive cash for them. And it is for this reason that wealthy people choose mortgages.
You may have a buyer who can afford to buy a home for $ 1 million in cash. But what happens if that person then needs to use some of that money, be it for an unplanned expense or another investment opportunity? Then their money could be tied for a long time. On the other hand, if a wealthy person invests $ 200,000 in a $ 1 million home and finances the rest, they still have access to $ 800,000.
2. Borrowing can be cheap
There have been periods in the past when mortgage rates rose. But in recent years, mortgage rates have been very attractive – especially over the past year. And when mortgage rates are low, it is profitable to borrow money to buy a home and invest money that is not pumped into the home with a higher return.
This is what rich people do. Right now, you can get a fixed mortgage for 30 years at 3.1%. On the contrary, investing in stocks can generate an average of 7% per annum. (This is actually a few percentage points below the market average.) In other words, it makes sense to spend a little more than 3% per year on interest to get 7%.
3. Mortgages provide tax breaks.
Taxes can eat into the income of rich people, which is why the rich tend to look for ways to minimize their IRS burden. And the mortgage meets these requirements. The interest you pay on your mortgage is not taxable, and this, combined with other tax incentives, helps wealthy people keep most of their money for themselves.
Getting a mortgage is beneficial
If you are the average home buyer, you probably cannot afford to buy a home straight away, especially given that the value of real estate is now grossly overpriced. But even if you could afford to buy a house with cash, it wouldn’t make sense. There are many benefits to getting a mortgage, especially when interest rates are as low as they are today, so if you don’t like financing a home purchase, just remember that rich people do the same thing all the time.
Historic opportunity to potentially save thousands on mortgages
Interest rates will likely not stay at multi-year lows for much longer. That’s why taking action is critical today, whether you’re looking to refinance and cut back on your mortgage payments or are ready to pull the trigger when buying a new home.
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