Money, The Difference Between Cash vs. Mortgage

When it comes to buying property, not many people have the cash to make an outright purchase and rely on online cash loans or mortgages to make the purchase. A mortgage provides those who cannot afford a cash purchase with the opportunity to purchase a home.

However, there are some disadvantages to taking out a mortgage and making a cash purchase is always preferable. Some of the disadvantages include:

– Interest. When you take out a home loan or mortgage, you will be charged interest on the principal loan amount for the term of the mortgage (which is the repayment period). This added interest means that you are paying more for the home than you would if you bought it for cash.

– Fees and Charges. Additional fees and charges may apply. For example admin fees or service fees. These additional charges once again increase the amount that you are paying to purchase a home.

– Ownership. The bank or financial institution that provides the mortgage holds the property as security for the loan. If you default or fail to meet your financial obligations, the property can become forfeit and be seized by the loan provider in order to recover the loan amount.

On the other hand, there are benefits to having a mortgage apart from the fact that it allows you to buy a home without cash. There are major tax benefits and it may allow you to access funds as and when you need them. These funds can be used to make repairs, renovate or remodel the home.

There are also ways that you can reduce the disadvantages associated with taking out a mortgage. Putting down a large down payment will reduce the principal debt and therefore the interest that you are paying on your debt. Paying less in interest gives you all the benefits of a mortgage while minimizing the costs involved and therefore how much your are really paying for your home.

Opting for a shorter term is also beneficial. This allows you to pay your home off faster and reduces the amount of interest that is charged. The longer the term or repayment period on a mortgage, the more you are going to be paying in interest. While the monthly repayments will be greater, you will save money in the long run.

You can also sink additional funds into the mortgage as and when they become available. For example, if you receive a bonus or a pay-out on an investment, you can pay it into your mortgage to reduce the interest, monthly installments and to pay the loan off faster.

In general, a mortgage or home loan is considered to be good debt because you are purchasing an asset that appreciates in value.

Cash Loan For Home Purchases

Cash loans are normally short-term loans offered in small amounts and are not aimed at making big purchases like buying a property. Although a cash loan can provide you with the means to purchase a home outright or use towards a down payment, the interest for these types of loans are often much higher than for a mortgage.

If you are considering taking out a cash loan in order to increase the down payment on your house purchase, this is not recommended. You are paying less in interest for the mortgage and more in interest for the cash loan. Rather save for a a longer period of time to get the amount that you need for a down payment. Remember that if you take out a cash loan for this purpose, you will be repaying your mortgage and the loan at the same time which could make it unaffordable and result in a debt trap or foreclosure.

It is recommended to consult a mortgage broker for advice when considering purchasing a home.

James is the owner of the website Cashonyourmobile.net.au, which helps people find short term loans for their various needs.

Author: James COYM

James is the owner of the website Cashonyourmobile.net.au, which helps people find short term loans for their various needs.