There’s no doubt that buying a home is an exciting endeavour. It’s a major decision no matter what way you look at it. Of course, you want to choose the perfect home in a welcoming community where you can settle and raise your family. And, you also need to determine the best way to finance one of the biggest purchases you’re likely to make in your lifetime.

If you’re fortunate enough to have the option of either paying for your property with cash or financing your new abode by taking out a mortgage, there are a few things to consider. Here are the main pros and cons of each approach.

Cash purchase

While a cash purchase might look like a simple alternative, there are some basic pros and cons to be aware of.

Pros:

• Peace of mind – Owning your property outright can give you a feeling of comfort. You have no mortgage payments to worry about and don’t need to be tracking mortgage interest rates to decide when is the best time to renew your loan.
• Fewer closing costs – You will avoid costs associated with taking out a mortgage, such as fees for obtaining a credit report, processing the loan application and appraising the property.
• Faster purchase – Buyers will be attracted to a seller that has cash on hand since they don’t have to worry about a mortgage approval falling through, and the deal not proceeding. You may even be able to negotiate a lower purchase price.

Cons:

• Less cash available – If much of your personal wealth is tied up in your property, you’ll have less cash on hand for other spending. At a minimum, it’s important to make sure you’re able to afford the maintenance cost, insurance premiums and property taxes on your house, and have some cash put away for emergencies.
• Increased investment risk – Real estate is usually a solid investment. However, review the market conditions to determine if your money might grow faster if it’s invested in stocks or bonds.

Mortgage financing

Most people finance their home purchase with a mortgage from a bank or other lender. Even though it’s a common practice, you should consider the following pros and cons to see if it’s right for you.

Pros:

• More cash available – You may find it less stressful to have more cash liquidity. This will give you the financial flexibility to make improvements and renovations to your property that will meet your family’s needs and also increase your home’s value.
• Funds to invest – It’s good not to put all your eggs in one basket, as the saying goes. If you can secure a mortgage at a low interest rate, you’ll have money to purchase other investments such as mutual funds.

Cons:

• Interest rate changes – Mortgage interest rates fluctuate and you’ll need to pay attention to what your loan is costing you. You’ll have to choose between a fixed and variable rate and select the term length, so take the best deal you’re offered.
• Home isn’t yours – A mortgage on your property essentially means that you don’t own it, the lender does. While this may have more of a psychological impact if you plan to continue living in the house, if you decide to sell, you’ll need to pay the bank off.

In short, the best option is probably the one that gives you the biggest bank for your buck, as it were. The Real Estate Council of Alberta is a great resource to understand all the financial decisions that go into buying a home. Plus, I’d be delighted to answer any questions you have.