For most people looking to enter the real estate ownership space, flats provide a more affordable housing option. With this in mind, is it a good idea to pay cash for a flat? At the onset, paying cash to buy your flat probably sounds like a good idea. After all, you don’t have to worry about mortgage payments and interest rates. Read on to find out if paying cash for a flat is really a good idea.
When is it a good idea to pay cash for a flat?
To start with, paying cash for a flat means you have sufficient funds to meet all your financial obligations as a buyer. This means you are able to meet the asking price for the flat as well as any additional fees that are required in the purchase of the flat. Be careful not to completely deplete your financial savings in an effort to save on mortgage payments. Moreover, when you pay cash for a flat it means a substantial amount of your savings will be tied up in one asset. As such, if you are going to pay cash for a flat then you should have more financial resources leftover for other investments and various expenses.
The benefits of paying cash for a flat
Let are explore some of the benefits of paying cash for your flat.
No need to get approved for a mortgage
Firstly, when you pay cash for your flat then you do not need to jump hurdles or go through hoops to get a mortgage. Moreover, getting a mortgage is not an easy thing for those with a bad credit rating. With all the steep requirement modern buyers are subjected to, getting approved for a mortgage can be particularly difficult. Needless to say, when you have enough cash to pay for a flat then you do not have to worry about qualifying for a mortgage. In addition, there is no stress and hassle of going though the mortgage application process.
Own your home outright
Under a mortgage arrangement you do not own the property until you completely finish paying off the mortgage. Although your name appears in the title of the property, the lender actually owns a certain amount of the property. The amount owned by the lender is primarily dependent on the amount of equity you have in the flat. However, if you pay cash for your flat then you will own your home outright and be the sole owner. Lastly, when you pay cash for your flat then there is no chance of you losing your home in the event that you default on your mortgage payments.
No mortgage payments to make
Thirdly, it can be financially liberating not having a long-term financial commitment in the form of mortgage payments. As you are not leveraged, you will not have monthly mortgage payments to make to a lender.
The drawbacks of paying cash for a flat
Money tied up in single investment
One of the greatest drawbacks of paying cash for a flat is that you will have a substantial amount of money tied up in a single investment. This scenario robs you of any opportunity to diversify your investment portfolio.
If the bulk of your money is tied up in a single investment then you have little leftover for anything else. Thus, if you ever need to access the equity in your flat then you will need to go through a lot of red tape and procedure.