Why is it better to buy a home with a mortgage even if you can buy it off in full?
In: Economics
Opportunity cost is the phrase you’re looking for. As in : if I spend money on a home, I give up using that money somewhere else. Mostly depends on the cost of money (interest rates) and the alternative return.
Example: my mortgage is very low rate (2.6%). I spend $400 month/$100k borrow on principal + interest, about $5k/year.
If I had $100k and could get 5% on a CD, the interest generated would pay for my mortgage without the loss of principal.
Or I could invest in the market and get 7% while only paying 2% interest.
Today’s mortgage rates make these options less viable.
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