And why would it ever be a good idea to borrow if you can pay cash and pay no interest to the bank?
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It should be noted that the interest rates usually offered for mortgages are very low compared to other types of loans and are not usually that far above inflation, so I’m not even going to address interest rates.
Pros for Borrowing:
* You can afford houses that you could never realistically hope to save up cash for before the age of, like, 60. This is the main benefit for middle class buyers, since people usually like to own a home sometime before the age of 60.
* Rich people can deduct mortgage interest on their taxes.
* Rich people can take out a low-interest mortgage and use their house(s) as a giant low-interest credit card so they don’t have to sell stocks for cash. >!Since rich people like to use their political power to make sure that real estate prices always go up, the effective interest rate might actually be negative.!<
Cons for Borrowing:
* The bank has a lot of control over the purchasing process, which they can delay or cancel for reasons you might not agree with. You can’t buy as quickly as with cash due to all of the red tape.
* The bank will force you to get insurance, an inspection, etc. because the home is your collateral, and they don’t want anything to happen to it.
* You can get denied a loan if you don’t have a good credit score or a “traditional” 9-5 job.
* Fees.
TL;DR: Mortgages are really attractive loans, and even some billionaires take them out so they they can use the money elsewhere. Having a lender involved in the purchasing process decreases your flexibility, though, since you need the bank’s permission to do anything.
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