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Property buyers

Which is better, paying for a house in cash or getting a mortgage?

When you leave home, one of the things you think about is buying your own home, but one main doubt comes up: whether to pay in cash or get a mortgage.

Generally, this decision will depend on our financial situation. 

Spain is a country in which the number of mortgages taken out increases by the day, thanks in part to the excellent behaviour of the Euribor rate, currently below 0%.

When, however, we choose to buy a property and pay in cash, we have the benefit of paying up to 35% less compared to what we would shell out altogether if we applied for a mortgage. 

To make the best decision, though, it's important to evaluate which of the two options is the best one to enable us to buy our dream home.

In this post we'll show you the advantages and disadvantages to each of the two options we have when we want to buy a property to help you decide which is the best choice for you. 

Advantages of paying for a house in cash 

  • If you buy a property in cash, you won't have to pay any additional costs such as mortgage formalisaton fees or commissions. 
  • When you avoid paying commissions you save yourself an additional percentage on top of the amount borrowed, as these commissions cover all the expenses involved in setting up a mortgage.
  • You will save a lot of money as you won't have to pay the monthly instalments and interests that are agreed upon when the loan is taken out. 

Disadvantages of paying in cash

  • Paying with all your savings or using a large portion of your capital to finance a house purchase can cause a problem in the future if you need the money. 
  • If the funds you have available are less than the market price for the property you wish to buy, you will have to settle for less (a smaller house, one with less facilities or of a lower quality).

Advantages of taking out a mortgage 

  • Applying for a loan to buy a property will allow for adequate financial liquidity. 
  • Due to the fact that the Euribor rate is negative and at historical lows this year, the monthly mortgage repayments will be very low as the interest payable will be less than in past years. 
  • Financial institutions provide financing for up to 80% of the value of the property. Therefore, you won't have to put up 100% of the purchase price yourself and can combine your savings with the amount you obtain a loan for.

Disadvantages of mortgages 

  • One of the reasons people aren't sure whether to take out a mortgage or not is the interest that must be paid. 
  • "You marry the bank," loans are long-term obligations. 
  • The buyer has to pay initial commissions to formalise the mortgage loan. 

Whether you take out a mortgage or pay in cash, it isn't a decision that should be made lightly. Therefore we must analyse our situation and our possibilities carefully.

The best thing to do is employ an expert in property purchases, someone to advise us and help us choose the best option.  Employ a Real Estate Buyer's Agent.

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