I never thought I’d buy a property cash. Yet this is my second one. Right out of college, I had $25K in savings, thanks to a lot of student jobs, and the French system’s cheap tuition. I wanted to put the money down for a flat, but since my work contract was ending with the company that had paid for my master’s degree, and I planned on traveling the world for a year, the bank was not too fond of the idea.
So I went looking, to see what $25K saved up would buy me. If I wanted something near Paris, the answer was almost nothing, but a 20sqm studio flat in one of the worst neighborhoods of the country,about 15 miles from the center. I did way too little research, blinded by the perspective of passive income, and listened too much to what the realtor was saying.
He said the neighborhood had reached the bottom, what used to be a working class residence was now overcrowded with illegal migrants but thanks to a lot of public funds, it would get better in 3-5 years. In the meanwhile, I would get a rental return of nearly 10%, something unheard of in the center of Paris.
I went for it. Had I done ALL my homework, I would have learned that the council AND the homeowners’ association were deeply in debt, that they were poorly administrated and both local taxes and condo fees were among the highest of the country, basically to pay interests on the debt.
I have to admit I freaked out a little, but I went traveling anyway, and for 10 years the property was managed professionally, so I didn’t have to worry about anything. I had an insurance to cover the rent which proved useful since the tenant was not so inclined to pay, then died, then his widow squatted for a while until the police got her out in March 2012.
Let’s not digress. Having no mortgage gave me peace of mind for those 10 years. I could afford the condo fees thanks to the rent and anything on top was for me. No budget stretch, no ”what if the tenant leaves”, to be honest I barely reviewed the statement the rental agency sent over, I just waited for my quarterly money transfer to kick in.
Then I spent a stressful six months looking for a buyer after the widow was evicted, but finally sold the place at the end of 2012. The proceeds allowed me to buy a place cash in Guatemala. I should say a home. My residence. For the first time, I am living in a place that I fully own. And it has a lot of benefits.
- I don’t have to pay a mortgage so all my would-be rent money can go into repairs and improvements to turn the place into a home.
- I can sleep at night knowing that even if I go broke I will still have a roof over my head. And some land to grow food, since the property came with 90 acres of land.
- I could take a loan against my home in case of financial hardship. Although I hope I will never have to, and will certainly not take a loan to buy a new car or take on some kind of consumer debt, my cash is invested in an appreciating asset (since we are working like crazy on it), and can be partially withdrawn to cover an emergency. Mortgage rates here are around 9-12% so it is a pretty healthy return on investment.
- I can rent it without asking my mortgage provider for an authorization, or them changing the rate to a buy-to-let mortgage.
- I can brag about it and paint the parcel red in Google Maps and say ”that little corner of the world is mine”.
Yes, that is exactly what I did!
- Even though monthly expenses are crazy at the moment with all the improvements, the ”survival” mode budget would be very low, I would say we can live with $250 each a quite basic life with no luxuries.
- It makes the financial future bright. Knowing I could weather any storm makes me want to take more risks, try to grow, start a business, invest… with a comfortable safety net in the form of a home. I admit it is not as liquid as a cash emergency fund although many people with emergency funds still have mortgages so it kind of evens out.
There are lots of mortgage options but the best one I think is having none.
Any other pros to having no mortgage?
This post was featured on The Frugal Farmer, Mom and Dad Money, Carnival of Wealth, thank you!
FAQs
Key Takeaways. Paying off your mortgage early could free up your cash for travel, retirement, or other long-term plans. Being mortgage-free may insulate you from losing your home if you run into financial difficulties.
Why is it good to be mortgage free? ›
What are the benefits of being mortgage free? Having more disposable income, and no interest to pay, are just some of the great benefits to being mortgage free. When you pay off your mortgage, you'll have much more money to put into savings, spend on yourself and access when you need it.
What are the disadvantages of a mortgage? ›
One significant disadvantage of taking out a mortgage is the long-term financial commitment involved. Depending on the length of your mortgage term, you may be making monthly payments for decades, tying up a significant portion of your income.
Why is mortgage important? ›
As a result, mortgages allow individuals and families to purchase a home by putting down only a relatively small down payment, such as 20% of the purchase price, and obtaining a loan for the balance. The loan is then secured by the value of the property in case the borrower defaults.
Is it best not to have a mortgage? ›
It's still debt
Even if you've eliminated all your other obligations, having a mortgage remains a major expense, effectively tying up your income and affecting your cash flow.
What are the benefits of not owning a home? ›
- 1) No Maintenance Costs or Repair Bills.
- 2) Access to Amenities.
- 3) No Real Estate Taxes.
- 4) No Down Payment.
- 5) More Flexibility As to Where to Live.
- 6) Few Concerns About Decreasing Property Value.
- 7) Flexibility to Downsize.
- 8) Fixed Rent Amount.
Buying a house “with cash” can benefit both the buyer and the seller with a faster closing process than with a mortgage loan. Paying in cash also means no interest and can mean lower closing costs.
At what age should your mortgage be paid off? ›
To O'Leary, debt is the enemy of any financial plan — even the so-called “good debt” of a mortgage. According to him, your best chance for long-term financial success lies in getting out from under your mortgage by age 45.
What are the psychological benefits of paying off mortgage? ›
Once debt is paid off, your self-confidence can make a fast turnaround. Some individuals even share their debt stories out of a renewed sense of confidence, according to Dlugozima. “You become more open about it because you've gotten through the other side,” said Dlugozima. “It's empowering.”
Is it better to have a mortgage or pay it off? ›
If it's expensive debt (that is, with a high interest rate) and you already have some liquid assets like an emergency fund, then pay it off. If it's cheap debt (a low interest rate) and you have a good history of staying within a budget, then maintaining the mortgage and investing might be an option.
As you may have gathered, we actually believe it's good to have a mortgage. Of course owning a home “free and clear” is a good thing too, yet if the choice is between having a long mortgage or a short mortgage, we'd recommend the long mortgage. As we mentioned, mortgages get better with inflation.
Is mortgage good or bad debt? ›
In addition, "good" debt can be a loan used to finance something that will offer a good return on the investment. Examples of good debt may include: Your mortgage. You borrow money to pay for a home in hopes that by the time your mortgage is paid off, your home will be worth more.
Is it necessary to get a mortgage? ›
If you have enough cash in hand to buy the house, then no, you don't need a mortgage! Another option could be a “land contract” with the current owner which obligates you to pay the agreed upon price but without a bank or mortgage company loaning you the required monies to purchase the property.
What is a good credit score? ›
There are some differences around how the various data elements on a credit report factor into the score calculations. Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.
What is the primary purpose of a mortgage? ›
A mortgage is an agreement between you and a lender that gives the lender the right to take your property if you don't repay the money you've borrowed plus interest. Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.
What is the best age to be mortgage free? ›
A good goal is to be debt-free by retirement age, either 65 or earlier if you want. If you have other goals, such as taking a sabbatical or starting a business, you should make sure that your debt isn't going to hold you back.
What happens when you no longer have a mortgage? ›
After your loan is closed, your escrow account will also be closed, and any remaining funds will be returned to you. Legally, the mortgage servicer must issue your escrow refund within 20 days of closing the account. You will then be responsible for paying your home insurance premiums and property taxes on your own.
