But I Want To Stay Debt Free!
Fine – but the big picture is important, so here are a few thoughts to consider:
- Long-term fixed interest rates are not likely to be as attractive into your retirement (and if you are nearing retirement, your employment income goes away – potentially causing difficulties for you to obtain financing if needed in the future);
- Mortgaging your to-be-acquired property allows you to maintain additional “just-in-case” liquidity (and can improve your credit score);
- Over time your investment advisor should be able to comfortably achieve annual returns on your invested capital/retirement funds in excess of the annual interest charges on your mortgage (not to mention the tax benefit of the mortgage interest deduction);
- With enhanced dividend/interest earnings from investing your liquidity now (as opposed to using it for purchasing a property), your debt-to-income ratios would better support borrowings in the future; and
- Through a mortgage, you will continue to build real estate equity through principal amortization, and you can always select a lower LTV or faster amortization period (i.e., fixed monthly payments over 10 years instead of 30 years, at an even more attractive interest rate).
Here’s the Point: Given today’s favorable interest rates, taking out a prudent mortgage that suitably meets your needs (instead of paying cash) is a sound economic decision, at any socio-economic level. I have seen all too often people regretting after the fact that they did not put a low-cost mortgage in place – and then it was too late.
