arthon meekodong / iStock.com
Some financial experts recommend using debt as leverage when it comes to investing money and building wealth. Then there are experts such as Dave Ramsey and George Kamel, who are against debt and believe in paying off all of your balances.
Kamel, the host of “The Ramsey Show,” recently appeared on “The Iced Coffee Hour” to discuss why it’s better to avoid a mortgage when purchasing a home. We will review some of the reasons you shouldn’t get a mortgage if you have the cash on hand to buy a home.
You Don’t Have an Emergency Fund Yet
Kamel and Ramsey advocate building up a healthy emergency fund before entering the real estate market. One of the hosts argues that you have more liquidity when you have a mortgage and leave some of your funds in cash.
Kamel pointed out that the best liquidity comes from a fully funded emergency savings, with anywhere from three to six months’ worth of living expenses saved up. When you have the money on hand to cover any unexpected expenses, you don’t have to stress when an unexpected expense pops up.
Complex Real Estate Strategies Can Be a Headache
While there are proponents of owning multiple properties and getting into home equity loans, the reality is that these plans can be a huge headache. Arguments can be made for holding a mortgage so you can invest the cash into other assets, but then you still have to worry about making your mortgage payments when you could just enjoy being debt free.
It’s also worth pointing out that home equity loans and other investments come with risks, while there’s no risk associated with paying for your home in cash. Complex real estate strategies also could lead to other issues when rates go up or if the market were to drop.
You Get Peace of Mind From Being Debt Free
Kamel mentioned that something must be said for the peace that comes with being debt free. When you pay off all of your debt, you become in control of your finances since all of the money you bring in is yours. Kamel said you can’t quantify or fully express the peace that comes from being debt free.
When you don’t have a mortgage or any other debt, you can live a life that’s true to you because you don’t have to worry about making loan payments. Kamel feels that this feeling is worth more than trying to find a low mortgage rate to make other investments.
Less Risk Leads to Less Stress
Kamel mentioned how not having a mortgage payment leads to less stress for a family. Since he doesn’t have a mortgage, his family doesn’t have to stress about making these monthly payments. They get to use their income as they see fit based on their goals and values.
Even though it’s tempting to borrow against your home to invest money or to have a mortgage instead of paying it off, you’re taking on risks. When you take on risks, there’s a certain amount of stress that’s to be expected. While some can handle this stress, it can be an unnecessary burden on many.
Low Interest Rates Are Like Handcuffs
Even though the rates have increased recently, many homeowners locked in lower mortgage rates. Kamel argues that these rates are like handcuffs because people can’t let go. When you have a low interest rate, you feel like it doesn’t make sense from a financial perspective to pay off your mortgage, so you hold on to it. Instead of focusing on becoming debt free, you may convince yourself that it’s acceptable to have this balance since you’re not spending much on interest fees.
Instead of being handcuffed, Kamel wants you to become debt free even if the rates are low. Once you pay off your mortgage, you won’t have to worry about any payments, and you can focus on investing your money as you see fit.
You Can Become a Millionaire By Investing Your House Payment Equivalent
In an episode of “The Ramsey Show,” Ramsey discussed how paying cash for a home allows you to invest the equivalent of a monthly house payment. Instead of trying to carry a mortgage to invest your funds, you can focus on paying off your mortgage so that all of your income can eventually go toward your investments that will build a better future for you.
Closing Thoughts
If you have the money saved up and aren’t sure whether you should take out a mortgage, consider these arguments against having any debt. While we’re all in different financial situations, there’s something to be said for doing your best to become debt free so you can have all of your money working for your future.
More From GOBankingRates
Source link
