Personal Finance Guides

Planning to buy your dream home? Here are the pros and cons of cash purchases

Vernon Pillay|Published

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Even if you have enough cash in the bank to be able to buy your next home outright, you should probably think twice before you do.

Gerhard Kotzé, managing director of the RealNet estate agency group, says that using a home loan to finance the purchase is often a better way to go, especially if buyers apply through a reputable mortgage originator, that will make sure they are offered the best possible interest rate.

In any case, he says, they should carefully weigh up the following advantages and disadvantages of cash purchases before making a decision:

Advantages of a cash purchase:

  • You will save money by not paying interest on a home loan for 20 years.
  • You will avoid having to worry about being approved for a loan
  • Your credit record will also not come into question
  • You will have 100% equity in your home.
  • You will be an attractive buyer to serious sellers.

Disadvantages:

  • You will lose liquidity.
  • If you only want to invest in property, you should seriously consider spreading your risk.
  • You will have no gearing protection.
  • Property can take weeks or months to sell, which can be a problem if you need money quickly.
  • No bank valuation.

“Obviously the decision about how to pay for your home is a personal one, but you should definitely not decide to do away with a bond and part with a large amount of cash on the spur of the moment.”

“You really must seek professional help to make a proper assessment of your overall financial situation and long-term investment plans before you make such a major move,” Kotzé concludes.

PERSONAL FINANCE

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