# Buy a house with cash or mortgage?



## willpower (Feb 18, 2015)

Good day,

I wonder what would you guys do if you were in this situation.

I'll be moving (for work) in the near future in a small town and I'm planning on buying a house. I'm pretty lucky because houses are cheap compared to major centers. The houses I am looking at are between $150k and $200k.

My TSFA account is currently maxed out (ETF and Stocks)
My RRSP are not maxed out (By choice) and I'm contributing to a good Federal Pension Plan.
I sold my old place a little while ago so I have about $170k (Should be near $185k by the time I actually have to pay for the house) in a regular saving account.

If you were in my position, would you just pay for the house cash (Take out $10k to $20k *if required* from TFSA to cover)? Or take a mortgage and only give a part of the $175k as a down payment and invest the rest?

*Things to consider...I will most likely not stay in this residence for more than 3 years. Also my employer pays for lawyer fees and mortgage fees (Penalty and closing fees) when I move.

I always been the kind of guy who tried to pay my debts before investing but I'm curious to see what you guys think? (Especially with how the market has been lately).

Thanks 
Willpower


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## Numbersman61 (Jan 26, 2015)

willpower said:


> Good day,
> 
> I wonder what would you guys do if you were in this situation.
> 
> ...


I would pay cash for the house. If you invest the funds and use a mortgage to pay for the home, the interest on the mortgage will not be deductible but you will pay tax on the investment income. If, however, you pay cash for the home and then subsequently borrow funds for investments, the interest on the loan will be a deductible expense.


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## Just a Guy (Mar 27, 2012)

To me, it would depend on what return on investment I could get. If my investments pay more than the mortgage (after taxes that is), I’d probably invest the money. If the returns are likely to be lower, it’s probably best to pay off the house. 

Alternatively, you could pay off the house, get a line aid credit and invest the money from the line of credit. Actually, that’s probably the best solution period.


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## OnlyMyOpinion (Sep 1, 2013)

willpower said:


> ...*Things to consider...I will most likely not stay in this residence for more than 3 years. Also my employer pays for lawyer fees and mortgage fees (Penalty and closing fees) when I move.


But not realtor fees (I hope).
Its generally not recommended to buy a house you will only live in for 3 years.


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## 319905 (Mar 7, 2016)

I don't know what your position is but I'd rent ...

Interesting: penned simultaneously with OMO


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## willpower (Feb 18, 2015)

OnlyMyOpinion said:


> willpower said:
> 
> 
> > ...*Things to consider...I will most likely not stay in this residence for more than 3 years. Also my employer pays for lawyer fees and mortgage fees (Penalty and closing fees) when I move.
> ...


Sorry...yes I should have mentioned that employer will cover all expenses related to the sale of the residence (including realtor fees) when it's time to move.


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## Spudd (Oct 11, 2011)

I would still rent, given the hassle involved in selling a house, and given rising interest rates might mean you lose money on the sale. But if I were buying, I would likely pay cash.


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## james4beach (Nov 15, 2012)

I would also rent. I don't see the logic in buying a house that you won't stay in for at least 10 years. Even if some of the fees are reimbursed by someone, there's still a lot of friction cost in general. Houses aren't particularly liquid.

Plus, you take on capital risk if you buy the house. Real estate is volatile (just like stocks) and can go up or down, so you're just gambling on the price change over 3 years. It wouldn't be a good idea to buy the stock index with a 3 year time horizon, and it's not a good idea to do it with a house either.


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## Numbersman61 (Jan 26, 2015)

The original question was how to pay for the house. The thread has now morphed into the wisdom of buying versus renting. The OP stated he intended to purchase a home - not should he rent or buy. Many individuals like myself will never rent a home - I don’t ever want to be accountable to a landlord as to what I can and cannot do in my home. I’ll take my chances with the vagaries of the real estate market


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## Prairie Guy (Oct 30, 2018)

Numbersman61 said:


> The original question was how to pay for the house. The thread has now morphed into the wisdom of buying versus renting. The OP stated he intended to purchase a home - not should he rent or buy. Many individuals like myself will never rent a home - I don’t ever want to be accountable to a landlord as to what I can and cannot do in my home. I’ll take my chances with the vagaries of the real estate market


I'm one of those people that would never rent a home...I've owned for 35 years. But, if I knew I'd only be somewhere for 3 years, then my mindset would change from owning to renting for that period of time.


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## Jimmy (May 19, 2017)

Being there for only 3 yrs is certainly an important consideration and does bring the concept of rent vs purchase into play. 

Realtor costs, land transfer costs etc are substantial and can easily add up to as much as 8% -9% which is a huge amt on a $200,000 home purchase. Keep in mind too prices are also leveling and the avg home price increase last year was only 1%. 

You have to weigh the 2 scenarios. Renting w the $ paid in rent vs owning and all related costs (annual land taxes, utilities etc) plus these selling costs less any house appreciation in value. Plus the risk others have mentioned of a house price decline even


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## nobleea (Oct 11, 2013)

Jimmy said:


> Realtor costs, land transfer costs etc are substantial and can easily add up to as much as 8% -9% which is a huge amt on a $200,000 home purchase. Keep in mind too prices are also leveling and the avg home price increase last year was only 1%.


Being a federal employee, all those frictional costs are covered. In fact, some areas of the government will even cover you for losses in house value. In some cases I think the loss is capped at 15K, in others it seems like there is no limit.
I grew up in a military family, we got posted around about every 3 years. I would say we bought a place more than half the moves.
http://www.njc-cnm.gc.ca/directive/d6/en
This is for the feds, but the RC's and CF have very similar ones.


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## Longtimeago (Aug 8, 2018)

I can't see any 'right' answer to this question. As already noted, whether it will work out better in the end financially depends entirely on what happens in the housing market vs. what happens with whatever you might invest the money in instead. Only someone with a crystal ball could say which WILL be better. Even an 'educated' guess probably won't get you beyond a 50/50 chance of coming out ahead.

So if there is no 'right' answer predictable, then that factor should be left out of the decision entirely in my opinion. You'll win a bit or lose a bit either way as the gods will it. So then all the other factors can be considered and ranked in importance to YOU. For example, you might prefer to buy but hate the idea of the hassles involved in buying. They exist, can't be denied vs. just renting. On the other hand, you might really dislike the idea of a landlord having the decision making over what you can and cannot do the place you rent and be willing to put up with the hassles of buying to avoid that. 

So we can all put in our two cents worth as to whether it is better to buy or rent but in fact none of us can answer that question in terms of which would be better for YOU. That depends entirely on your preferences, not anyone elses.

What we can do however is try and answer the question you asked. To buy for cash or mortgage? I see that question as pretty simple. If you buy for cash, you KNOW it will cost you nothing in terms of interest to pay. If you mortgage and invest the difference, you are gambling that you will earn more from the investment than you will pay in interest on the mortgage. You can win and you can lose in that scenario. For me to 'bet' on something, the potential reward must be significantly higher than the potential loss. In this case, the potential is equal which makes it a bad bet in my opinion. I'd pay cash. Whether you pay cash or take a mortgage, has nothing to do with the potential capital win/loss, that will be what it will be whether you buy for cash or take a mortgage anyway. The only difference is in the potential gain/loss of an investment if taking a mortgage.


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## willpower (Feb 18, 2015)

Thanks everyone. I'll see what is available on the market and see what is for rent and make a decision. If I buy I'll most likely pay cash.


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## *PetePerfectMan* (Jan 24, 2019)

*Pay in Cash*



willpower said:


> Good day,
> 
> I wonder what would you guys do if you were in this situation.
> 
> ...


Since you have the money. If I were you I will buy the house in cash. No need to worry about the fees. You will be more comfortable staying since you totally own the property.


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## OptsyEagle (Nov 29, 2009)

willpower said:


> I'm pretty lucky because houses are cheap compared to major centers.


You call that luck now. They will still be cheap when you go to sell them as well...possibly cheaper. 

I would not buy for only 3 years.


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## peterk (May 16, 2010)

It's quite possible if it's a rural town/small city that there are only like ~10 houses for sale, 5 of which are suitable for OP's needs, and ~3 houses for rent, all of which are subpar and unsuitable.

I'd think the pain of meetings at the bank, paperwork, and making payments would make taking on a small, ~100k mortgage a bigger pain that it's worth. I'd just buy outright.


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