How to buy a house: mortgage or cash?

buy a house

If you have some money aside and are thinking of buying your first home, you are surely wondering if it is cheaper to buy a house with a mortgage or in cash . But what is the best solution? As often happens, the answer to this question is: it depends .

In this article I will give you some tools to understand which is the best choice for buying a house according to your specific situation. But let’s go step by step. While you surely have an idea of ​​what it is, first of all I want to explain to you what a mortgage is and how it works. It will be useful for you to understand the concepts that I will explain later

What is the mortgage?

The mortgage is a loan agreement between a person who lends money and another who receives it. The latter, in addition to returning them within a certain period , generally undertakes to pay interest in exchange for the money received . Very often, therefore, the mortgage is composed of three fundamental elements:

buy a house

The amount of the loan , or the amount of money that is borrowed

The interest rate , which can be measured as an annual percentage of the amount borrowed

The amortization plan : these are the installments through which the repayment takes place which is typically monthly and in the “French” style, ie with an installment of an amount that is always the same but composed of a decreasing portion of interest and an increasing portion of repayment of the principal.

It is important to specify that the loan, unlike other types of loan, is characterized by the presence of a mortgage or an asset placed as a guarantee for the loan such as, for example, a property. If you were to apply for a home purchase loan, the bank would generally require you to place a mortgage on that property to make sure you will not lose your money if you are no longer able to repay the loan.

You would not have any of these “problems” but it is equally true that in some cases opting for a mortgage could still be the best choice , even if you had the necessary liquidity available to buy home.

Author: Saif Fuentes