Here’s an interesting answer to a question that may not be relevant to most of us, but makes you wonder, nonetheless.

Question: DEAR BOB: I plan on paying cash for my next residence. Are there any hidden dangers in paying cash? — Mark

Answer: DEAR MARK: Please don’t do that unless you are (1) very wealthy, (2) will be spending cash you never need to see again and (3) can afford to tie up a large amount of cash in one asset.

A better alternative is to pay a 20 percent or 25 percent cash down payment and obtain a fixed-rate 15- or 30-year mortgage for the balance of the purchase price.

Why?

Well, when you buy, no matter what, you can’t know everything about the home you are buying - most people buy in a new neighborhood, so there might be things about it you find out will affect the ultimate value of your home (like, they’re building a biolab down the street from you), or, you might just not like living there, as much as you thought you would.

If you buy into a condo building, you might find out that all your neighbors are rowdy college-kids, and that, when you try to sell, you have to settle for less than you paid.

Why put all your savings at risk?

In addition, with low interest rates (at 6.5%, mortgage loan rates are still at historically low levels, you can probably find a much better investment for the cash you have sitting in the bank).

Say, stock in a biolab company?

Source: Paying Cash for a Home Carries Risks - By Robert J. Bruss, c/o The Washington Post

John Keith     September 3, 2006     mortgages and financing

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