What is Deferred Financing for Cash Buyers?
Why go into debt when your house is paid off?
While it’s always attractive to pay off debt and keep it, mortgage debt is often considered good debt because, over time, it can increase your wealth.
Low interest rates
Today’s mortgage rates at the time of writing this report sit at just over 4% for a 30-year fixed rate mortgage. In contrast, 20 years ago, the best rate you could have gotten would have been just under 7%.
In this low interest rate environment, doesn’t it make sense to get most of your money back, get a mortgage to buy your house, and find another use for your savings? How about investing that money? What if you had major renovations in mind for your new home?
It may seem counterintuitive, but having no debt is not the key to being a good credit risk. In fact, it’s probably going to hurt you when it comes time to get a mortgage.
By having mortgage debt and paying it off faithfully and on time, you are building a favorable credit history. In the future, when you need a loan, it will be available to you, and at the lowest possible rates.
It is important to note that it will be helpful to have a pre-existing credit history with credit cards, personal, student or auto loans before getting a mortgage. Your home loan is just one more thing that helps add to your story.
Use of credit
Having a solid debt repayment history is just one of the factors lenders look at when assessing your creditworthiness. Another factor they take into account is your credit utilization rate, which is the amount of credit you are actually using at any given time. Lenders like to see that you know how to manage your credit.
Cash or cash available to invest
If you are an investor or would like to become one, you know the importance of having cash on hand. Although mortgage rates are low and the stock market and real estate investments offer the potential for high returns, it makes more sense to get your money out of your home and use it to build your investment portfolio.
When considering an investment strategy, be sure to assess your risk tolerance and balance your portfolio periodically to mitigate risk.