This is perhaps the historically best time to buy a home with a mortgage. Never in recent history have interest rates been so low. And never have fixed rates been so close to variable rates. Today buying a house with a mortgage is always convenient, even if you have the money to pay it all in cash. Let’s analyze why.
Because today it is a mistake to buy a house with cash instead of taking out a mortgage
Today, to buy a property, you can get a fixed rate ( EURIRS ), which in December 2020 reached an all-time low of 0.02%. The interest is practically zero. With such a level of interest rates, buying a property with a mortgage is cheaper than paying for it in cash https://www.provisionhomes.com/
In this historical context, paying for a house in cash is not convenient. In fact, you can take out a mortgage and invest the unused capital in government bonds of the same duration. This strategy could lead to earning several thousand euros. This is why today it is a mistake to buy a house with cash instead of taking out a mortgage.
How much is spent today with a fixed-rate mortgage of 110,000 euros for 25 years
Let’s do a simulation to understand why if you have cash, today it is better to buy a house with a mortgage. The research office of an important real estate company has assumed the purchase of a property worth 160,000 euros. And he assumed that the buyer was asking for a loan of 110,000 euros for 25 years
Then he calculated how much the monthly payment would be by taking the cheapest mortgage on the market. For a mortgage of 110,000 euros for 25 years at a fixed rate, the monthly installment of the most convenient mortgage would have been around 420 euros. An amount of 420 euros per month becomes a figure of 5,040 euros per year. For 25 years they make 126,000 euros.
So, let’s say you have $160,000 in cash to buy a house. But to prefer to ask for a mortgage of 110,000 euros. In 25 years, 126,000 euros will be repaid.
