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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Most people do not have enough cash to buy a house, so another similar question is whether you take 15 year mortgage or 30 year mortgage. You have to make some market decisions depending on the interest rates for each type of mortgage (15% is lower than 30 year).
The question becomes, what do you do with the monthly difference between the 15 year and 30 year mortgages? The 15 year mortgages while having a lower interest rate have a much higher monthly payment.
So now you have two plans:
1. Pay off the house in 15 years.
2. Get a 30 year mortgage and invest the difference between the higher 15 year mortgage and the 30 year mortgage. After 15 years, depending on the choices you made, you may have enough money to pay off the house and still have more money left. It all depends on the interest rates of the two mortgages and the markets for those 15 years.
Usually these questions are sidelined in that many people either can’t afford the 15 year mortgage payments, or do not invest the difference, but rather spend it on other things.
Another benefit of the 30 year mortgage is if you have an emergency, your payment required is lower. A 15 year mortgage and an emergency means you are on the hook for a larger payment.
Some people like 15 year mortgages as “forced savings plans” and the thought of just being done with the debt in 15 years.
Some mention taxes but that depends where you live in the US. Where I live I’d never pay enough mortgage interest to get to the standard deduction. Have a mortgage in parts of California and yep no problem.
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