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Should I use the profits from my home sale to purchase a new home outright, or use a mortgage to leverage my debt for the long-term?

I'm selling my home and will clear around $375,000 after closing. My new home will cost $200,000 and I need to put down 35 percent to start the build. Should I mortgage the rest on a 15-year loan, or pay off the rest of the home with what is left from the sale of my original home? If I paid the rest off, I would be out of all debt: car, consumer and so forth.

Debt, Real Estate
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July 2018

Of course this decision cannot be made in isolation. Consider your other financial circumstances: family obligations, your age, health, job security, retirement savings, etc. In general, I think you have a good idea with leveraging because mortgage money is the cheapest money you can get. Investing the proceeds from your current home, for the long term, may well result in returns that exceed the cost of funds, i.e., mortgage interest. Also, you need to consider that paying cash for the house has its own cost as well, that being the lost opportunity cost. Money tied up in home equity is money that cannot be invested and you thereby forego potential investment returns. In addition, I prefer to see people keep their options open. More liquidity provides more options for dealing with life's unexpected events. Also, consider a 30-year mortgage so as to not burden youself with the higher payment of the 15-year. Again, keeping your options open, you can make extra principal payments as often as you like, and effectively pay it off in 15 years, but fall back to the lower payment as needed. The difference in interest rates may not be that great if you are in good overall financial condition with an excellent credit score.

July 2018
July 2018
July 2018
July 2018