It’s possible for sure, assuming you’ve saved money to purchase a home, you should always put that cash toward your down payment, right? And now that might not always be the correct move.
Definitely, conventional wisdom suggests that assuming you have cash saved up and are looking to purchase a home, you should put that cash toward your down payment in order to reduce the size of your loan. But is that right?
Then now found out that many traditional financial experts, such as Dave Ramsey, promote eliminating debt as the fastest and most secure way to financial freedom. After all, without debt, you are free to put your money to work however you want.
Now however, a singular focus on avoiding debt at all costs may not be right for everyone, especially younger millennials who could benefit from getting into a house while also building their retirement portfolios.
Now especially when you look at your financial health as a whole, it may make more sense to consider both the short-term advantages of not paying down your loan (you keep your cash) and the long-term advantages of using the money in other ways (investing it to actually make more than you would save on interest).
Most definitely there are several questions to consider when deciding what to do with “extra” cash if you are purchasing a home. First of all at first glance, it might seem like the obvious answer is to pay down as much as you can from your mortgage. But first, ask yourself a few questions:
Possible to Make More Money Putting That Asset Elsewhere?
One certain again is that Kyle Tank, a financial advisor with Ameriprise Financial Services, Inc. in Troy, Michigan, says answering this question really depends on your situation. Now just compare how much money you will spend on interest over the lifetime of your loan (based on how quickly you plan to pay it off) with the average return rate of market investments.
The talented Tank adds that there may be other financial advantages to carrying debt on your home, especially when you consider tax deductions and interest rates.
“Interest rates on mortgages tend to be more reasonable than on other types of credit and can potentially be deducted on your taxes,” Tank says. In other words, it’s better to take out a mortgage and have extra cash on hand than it is to put too much down on your house and end up carrying a balance on your credit card. Mortgage interest rates are significantly cheaper than credit card rates. In addition, a home is an asset that can grow in value, in addition to the tax advantages.
What Kind of return Could I Make on My Investment?
However, now here’s where being young has a great advantage. If you’re looking at buying a home as a millennial, not only will you have time to pay down your mortgage, but your home will also have plenty of time to grow in value. And concurrently, you’ll also be able to increase your wealth through your investment accounts.
Then now, if you put money in the market while you’re young, those investments have a lot of time to grow into a sizable nest egg. Another thing to consider: You won’t have to opt for as many high-risk stocks as an older investor since she has less time for her investments to grow.
