If you're in the fortunate position to be able to pay cash for your next home, doing so might seem like a no-brainer. After all, wouldn't it be nice to live without a mortgage?
While there are certainly some good reasons to pay cash for a house if you can, there are some solid arguments to be made in the other direction. With that in mind, here are some of the pros and cons of paying cash for your home, and what you should consider before making your decision.
Advantages of paying cash for your home
The advantage of paying for your home in cash is obvious -- no mortgage. Owning your home free and clear is an excellent way to keep your monthly expenses as low as possible. You'll still have to pay taxes and insurance on an ongoing basis, but the out-of-pocket cost is almost certain to be a fraction of what you'd pay toward a mortgage.
In addition, all-cash offers are typically more appealing to sellers than those that come with a financing contingency. So, paying cash can make it more likely to get into your dream home.
Reasons you should still get a mortgage
On the other hand, a mortgage is generally considered to be a good type of debt. Not only is it backed by an asset that tends to appreciate in value over time, but it's one of the lowest-interest types of debts you can find. The average 30-year fixed-rate mortgage APR in the United States is 3.77% as of this writing. Compare that with 5.2% for a 60-month new car loan, more than 10% for an unsecured personal loan, and about 14% for a credit card.
In fact, financial planners often tell their clients to prioritize not only the repayment of other debts over their mortgage but to prioritize saving and investing as well.
Think about it this way: The S&P 500 has historically produced total returns of about 9.5% per year. If you can borrow money at less than 4% interest and earn returns of nearly 10%, wouldn't it be in your best interest to invest your extra cash rather than accelerate your mortgage repayment?