If you grew up in a household where debt was something to be avoided, paying cash may feel like the right thing to do, but the spreadsheets tell a more complicated story.
The Hidden Downsides Of Paying Cash
Now for the tradeoffs. When you put a large amount of cash into a house, several things happen.
1. You Lose Liquidity
Money invested in your home is not the same as money in the bank or in an investment account. It is locked into an illiquid asset. To access it, you would need to: • Sell the house • Take out a home equity line or a cash out refinance • Or otherwise borrow against it All of those options take time, effort, fees, and in some cases require that your credit, income, and market conditions still cooperate. If you have a major emergency or a business opportunity, you may not be able to tap that equity quickly or efficiently. Financial planners often warn that tying up too much of your net worth in illiquid assets like real estate can leave you short on cash reserves and flexibility.
2. You Give Up Potential Investment Returns
If your mortgage rate is, for example, in the five to seven percent range, the opportunity cost conversation becomes more nuanced. But historically, diversified investments like broad stock index funds have often produced average returns that can
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