Homebuyers

When Getting a Mortgage Makes Sense—Even If You Could Buy a Home in Cash

It may sound counterintuitive at first. Why would someone who has the cash on hand to buy a home outright still decide to get a mortgage?

Yet real estate agents nationwide report seeing affluent buyers choosing to finance properties rather than paying in full. That’s because for some, the modern mortgage has become a strategic tool that allows them to invest their money and pocket the returns. This can make taking on manageable debt more advantageous than paying it all off in certain circumstances.

Here’s what you need to know about when and why financing may be the smarter play than depleting your nest egg—and when writing a check for the full listing price still wins out.

The math behind getting a mortgage instead of buying a home in cash 

For years, historically low mortgage interest rates often dictated whether homebuyers of means should borrow or pay cash. The record-low rates during the pandemic made the decision to borrow almost obvious for many.

Today, mortgage rates are higher. Yet the basic idea stays the same. If your money can earn more elsewhere, it might be better not to lock it inside a home.

Real estate agent Scott J. Wheeler, with Posh Properties in Palm Beach County, Fla, said he’d worked with several clients who financed home purchases despite having the cash.

“As long as their investment earnings were higher than the mortgage interest rate at the time, they’d [often] be better off financially by keeping their money in the market,” Wheeler explained. “However, the higher the mortgage rate, the riskier a gamble this strategy could be, since stock market investment returns are not always guaranteed.”

Indeed, buyers considering a mortgage versus a cash offer should look closely at the tradeoff between what their money could earn in investments and what it costs to borrow. When the math works in favor of a mortgage, it can be a tool to stretch their dollars further.

The case for buying a home all in cash

For many buyers, the emotional value of buying a home in cash outweighs any potential financial upside to using a mortgage instead. In some cases, all-cash offers may save you money on a home as well.

You don’t need to pay mortgage fees or the interest on your loan, which can really add up over time.

Plus, cash can deliver what even the most favorable loan terms can’t: A competitive advantage when you’re making an offer on a home. Why? Buyers who pay in full often stand out in competitive bidding situations even if they don’t make the highest offer.

They may even be able to snag the home at a lower price.

For retirees or those on fixed incomes, the appeal is the absence of monthly mortgage payments.

It’s important to note that buyers may not even need the cash on hand to make an all-cash offer.

Some lenders will make the cash offer for qualified buyers. Then the buyers will rent the home until their mortgage goes through. This often appeals to those who are buying and selling at the same time or are in competitive markets.

“Cash removes the friction from the deal, strengthens negotiations in competitive markets, and provides a sense of peace that many buyers valued,” said Dan MacKinnon, real estate advisor and coach with Local Life Homes in Sarasota, Fla. Many of his affluent clients valued that simplicity.

In short, the appeal of cash is as much financial as it is psychological. For some, sleeping soundly in a fully paid-off home is worth more than any spreadsheet advantage.

Using a mortgage as a wealth-building tool

Other homebuyers prefer to use mortgages to build wealth. Rather than locking every dollar into one property, many buyers use financing to expand what they can do with their money.

“It’s all about the power of leverage,” said Sammy Lyon, associate broker with Dow Capital in Los Angeles, Calif. “If you have $1 million in cash, you could buy one $900,000 property… or you could put 20% down on a $1 million property and have plenty of cash left over to invest, renovate, or purchase another property.”

For buyers with various financial goals, keeping cash on hand can prove more valuable than owning a home free and clear.

MacKinnon said he’d also seen clients choosing to borrow strategically.

“There were many situations where taking a mortgage was the smarter financial move, even when you could pay outright,” he said. “When their portfolio was earning more than their mortgage rate, the numbers often made sense.”

A mortgage offers tax benefits and other perks

Using a mortgage could also keep a homebuyer’s financial profile strong.

“Mortgages also have tax considerations and credit advantages that are easy to overlook,” said MacKinnon. “Mortgage interest deductions can still provide benefits in certain cases, and maintaining an active credit profile helps with future business or investment lending.”

A mortgage, even for those who could buy outright, can be a way to preserve liquidity, diversify assets, and keep options open for an entirely different investment.

The bottom line on whether you should buy a home with a mortgage or cash

For buyers weighing using a mortgage or purchasing a home all in cash, a mortgage may make more sense when other debts or investment opportunities are in play.

There may certainly be an appeal to carrying a low-rate home loan, which could allow you to pay off higher-interest obligations or keep funds in assets that are likely to appreciate.

Younger buyers, in particular, may benefit from having some cash on hand and investing with a reasonable level of risk. Their money may have the potential to earn more than the mortgage costs, especially when tax deductions are considered.

However, returns on investments aren’t guaranteed. The smartest homebuyers weigh both options and choose what makes the most sense for them.

“Cash can bring peace of mind while financing can bring flexibility,” said MacKinnon.