Should you buy with Cash or with Mortgage- Which is the better option? (Chapter 2)
Buying a House With a Mortgage Plan
When you acquire a house with a mortgage, it simply means you legally take up an agreement that allows you to borrow money from a bank or similar organization in order to buy a house or the amount of money itself.
Unlike home buyers who have cash on standby to buy a property, a lot of prospective homebuyers end up missing opportunities to own a property dream because they feel they can easily raise funds without the help of the bank. Others are left sorting their mortgage too late. This is why processing your mortgage puts you in a stronger position with the seller of the house. It gives you the confidence to share your opinion on the property and it reduces stress.
Let us take a look at some of the advantages and disadvantages of taking up a mortgage plan.
Pros of Mortgage Loans
A mortgage plan comes with a number of advantages that you should take a thorough look at before you make that decision. Below are some of the great things about a mortgage.
It Does Not Tie Up Your Cash: As opposed to buying a house with cash, a mortgage plan gives you the flexibility to spread your payment over a period of time.
Leaves Room For Other Projects: Here’s a scenario – You have N180 million in cash and you want to buy a house (worth N120 million), 4 trucks (worth N5 million each) and invest N70 million into a particular project. If you decide to buy the house by paying cash for it, other projects will suffer but with a mortgage plan, you can see a bigger picture.
Reduced Tax Implications: Mortgage interest payments usually have a reduced tax obligation that may be a financially wise way to finance the house
More People Can Own Their Own Homes: In a country where 80% of the urban population live in rented apartments, more Nigerians will be able to own their own homes via a mortgage plan than making an outright payment of cash for the property.
Cost-Effectiveness: The interest loan on mortgages are lower than other types of loans
East to Repay: Mortgage is repaid on a monthly basis and is done little by little depending on the interest rate. What you pay back every month could end up being lower than what you would have had to pay as your monthly rent
Cons of Mortgage Plans
There are downsides to mortgage plans especially when viewed from a perspective of cash vs mortgage financing and you should take a moment to look through them before you take the plunge.
Debt: A mortgage leaves you in a situation where you own a home but you will pay back a lot of money over a long period of time. You can have your mortgage spread over as many as 30-40 years
Paying Back More Than You Borrowed: The interest on a mortgage plan will have you paying much more than you actually borrowed
Secured Loan: A secured loan is a loan in which the borrower pledges some asset (like a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. This is precisely what a mortgage is and failure to repay the loan leads to the loss/forfeiture of your house
Extra Fees: In addition to the interest that you pay on the mortgage loan, you will also be held responsible for valuation fees, remortgaging fees and conveyancing costs
Repossession Happens: If you default on the payment of your mortgage over a period of time, your house can be repossessed. This a risk that comes with mortgage plans
Final Thoughts on Cash Vs Mortgage Financing
Regardless of the differences in cash vs mortgage financing, the important thing is finding what works for you without necessarily sacrificing other necessary aspects of your life. You should also put some thoughts into which option offers you more benefits.
When faced with cash vs mortgage financing, consider going for an option that will give you a greater return on investment regardless of whether it’s a rental or commercial property.
