Do You Think I’m Dumb for Paying Cash for a House?

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With mortgage rates at record lows, you’d think I’d desecrated the flag when I told my real estate agent that I wanted to pay cash for our house.

After a couple of real estate agents reiterated the same point (regarding my financial foolishness), I decided it was time for my wife and I to re-evaluate our decision to buy a house with cash.

I got out my trusty calculator and ran certain scenarios.  If we borrowed at ‘x’ percent and then decided to invest the money we would have used to buy the house, we could get ‘y’ percent.  On paper, it actually looked like anyone with half a brain would borrow money.

I felt old fashioned and like a financial imbecile for wanting to buy a house with cash.

And so, for a week or two, we decided we should follow this new enlightened advice and get a loan.

Fortunately, we later vetoed our own decision and decided once again to pay cash for the house.

Reasons to Pay Cash for a House Even With Record Low Mortgage Rates

1.  The Bible Promotes Debt Free Living

They key to understanding what the Bible says about debt revolves around two key words: self-control and obligation.

Self-Control

I’ll be the first to admit that I don’t think borrowing money is sinful.  However, I do think that borrowing (especially in excess) is a sign that a person could be denying the Spirit’s work of self-control.  I think that a person who has excessive amounts of debt would admit that, for a point in their lives, they made decisions dictated not by the Spirit, but by the flesh.  When we come to Christ, one of the things we must learn to do is to harness our desires and instead pursue the work and will of God.

Obligation

We form a sort of commitment, oath, and covenant with those from whom we borrow.  Limited and reasonable number of such agreements will have little pragmatic impact on our lives.  However, if we borrow in excess, we limit our freedom to serve God because we have made too many covenants with lending institutions.  We can no longer go where he sends because we’ve over committed ourselves to other masters.

2.  We’ve Committed Not to Let the Calculator Be Our Guide

Where we live and what we do with our time is not determined by what is most profitable.  We’re challenging ourselves, my wife and I, to seek first the Kingdom of God and his righteousness.  That means the calculator does not have veto power in our decisions.  Obviously, we consider our finances, but we don’t want to pursue only what is most profitable.  Instead, we want to make choices that give us the freedom to be able to respond when we feel a burden for a certain type of ministry.

3.  If it Ain’t Broke, Don’t Fix It 

We’ve been able to save up the cash needed to buy a home by avoiding any form of debt.  We had a house mortgage on our last house, but lived well below our means so that we could have the funds necessary to pay off that house.

  • In 2012, we paid off our mortgage on a previous home.
  • In 2006, we paid off our last student loan.  We’ve never looked back.
  • In 2003, we paid off our last car payment.  We’ve never looked back.

We’ve never had any credit card payments and don’t have any intentions on going back.

The reality is that we got to this situation by avoiding debt.  Why, then, at the point where we could actually purchase a house with cash would we change our strategy?  Thus, we’ve strived to live debt free for the last dozen years we’ve been married and haven’t for a single moment ever regretted choosing to live on what we could afford instead of what we could borrow.

4.  Life Without a Mortgage Payment is Appealing

I hurt when I see people forced (apparently so) to make decisions out of reverence for the dollar.  They move places where the pay is good.  They pick jobs where the pay is good.  They take shifts where the pay is good.

Without a mortgage, we have less demands on what we must make to live.

The result is a freedom of choice.  My goal is not to use this freedom for self-indulgence, but to love others.

5.  The Person With the Most Toys Doesn’t Win

My theology does not accept the premise that whoever has the most at the end of life was a better steward.  Some people read the parable of the talents and conclude that the more you have to give, the more pleased God is with you.  I think our talents include much more than our financial resources.

By making the decision to buy a house with cash, I may end up with less resources to give into God’s Kingdom (or perhaps not).  But one thing I can guarantee is that I’ll have more resources of time and energy to give.

6.  I Refuse to Take Advice from Those Whom I Pity

I know a person who owns a lot of vehicles and a lot of property.  He makes a very good income, but everything he ‘owns’ has a high mortgage or loan associated with it.

Do I envy a person like that?  Absolutely not.  I pity that person.

If I respect the decisions you’ve made with money and if I see the fruit of those choices, I’m more likely to take your advice than to take the advice of someone with whom I wouldn’t ever consider trading situations.

So, what do you think?  Did I make a bad choice by deciding to pay cash for a house?

Comments

  1. Art Ford says

    I assume one of the reasons the calculator says it makes sense to have a loan is the opportunity to write off your interest payments. At one time I envied Americans for having that ability, but now believe in the long run it hurts people (as per 2008). If most people had owned houses outright, I personally think the whole country would not have suffered less (no I’m not an economist).
    I suspect there is not a little self-interest involved in the real estate agent’s position. There is a mind-set when people take out mortgages to spend not what they want, but what the lender says is the maximum they will make available to the borrower.
    Whether that’s so or not, the peace of mind of not having a mortgage or other debt is worth more than it’s weight in gold.

    • says

      Dad,
      Yes, the tax benefits of a mortgage is one of the factors that impacts the bottom line. Just like JD explained there are certainly people who keep a mortgage just for the deduction.
      Thanks for your encouraging words.

  2. Judith Redwine says

    Craig, I think it’s fantastic that you want to pay cash for your home. I’m in serious debt because I was foolish. The old adage, if I could do it all over again, I wouldn’t have any debt right now. Do what God said and don’t listen to those in the world who want to profit from you being in debt. God has spoken, you are listening and obeying. Thanks for your friendship, advice and wisdom.

    • says

      Judith,
      Thanks for your encouragement. Since you can’t go back I’d encourage you to make some firm resolutions about your future and change that. May God bless you and guide you.

  3. ken says

    are you dumb for paying cash for a house? it all depends on what your plan is.
    for some, they pay cash for their investment properties and mortgage their own house
    others, live on the payment plan and then take all the money from those loans and use it to make more investments.
    still, others can not imagine paying a house off early nor does it occur to them that is even a possibility.
    In my opinion, I would not pay for the house in cash. When and if you ever need that cash, chances are you won’t be in a position to get to it. You cannot eat drywall and you will still owe taxes every year. You could wind up loosing your money if your situation was one of govt. confiscation due to outstanding circumstances.
    If you have the cash readily available, say in a short term treasury mmf and you leave it there, then technically you still have the house paid off, just a little more insurance with the cash on hand for other opportunity or emergency.

    • says

      Ken,
      The only issue I have with your suggestion is that you assume that if a person pays cash for a home they’ll no longer have an liquid cash. Thus, if a person pays cash for a home and needs cash they could use their own cash they have in the bank. Also, in extreme circumstances a home equity could be an option.
      What is the ‘government confiscation’ to which you speak? I’ve only been back in the States for half a year, but I didn’t know that the US Government was in the habit of confiscating the properties of their citizens.

      • ken says

        first, the govt confiscation will happen when the perfect storm hits and you cant pay the taxes. one never owns a property in this country as the tax lien can take it away from you, so, although the taxes are affordable now, if things go south, you will get kicked out and you wont have your cash on hand.

        secondly, you will not get any kind of loan if the storm hits because whether or not your house is paid off or not, you wont get the bank to loan you anything with no income.

        thirdly, you arent a seasoned investor in real estate as it isn’t wise to lock up cash you can use to make income streams while it is stagnent in your drywall. even if you have alot of cash on hand otherwise, you still would lose the opportunity to have the cash on hand for survival or better investments. think about it. you “own” the cash and the house if dont pay it off. if you do pay it off you own alot of drywall that is susceptable to a fall in value. a real possibility. know asset vs liability and you will understand the point.

        • ken says

          so, after evaluation of the small bit i know from this conversation, NO, you did NOT do the right thing in paying off your mortgage. (unless it was in Belize).

  4. JD says

    Of course Craig you and your wife made the right decision. Anytime a person has the funds to fully pay for a home or vehicle we support that. We currently have neighbors that have double what they need to pay off their home in a savings account. They refuse to pay off the house because of the tax credit. (Sigh) PS They are in their 70′s. So, to each their own.

    If we could, our home would be paid off now. However we are working on a 8 year plan to eradicate this last debt and perhaps we will be able to achieve this goal. Congratulations!

    • says

      JD,
      There is definitely something about a persons temperament that impacts this decision. Some people just feel smarter for getting the tax credit.

      Thanks for your encouragement.

      • JD says

        You know Craig, you bring up an interesting point. The part about temperament….at first I just thought our neighbors were math challenged but after sitting here thinking what you said…I guess I understand their point of view. They have their money sitting and part of it investing counting on making more. So, with that said, it is how they perceive handling debt and investments.

  5. Greg says

    I wanted to comment about the idea of a tax write-off. Many times I find that when people talk about tax write-off’s it costs them more than they write-off. For example, a $100K loan you pay over 4K in interest, to get a tax write-off of about 2K. It actually costs you more to say you get a tax write-off. I have not been able to find a reason that the tax write-off question actually saves you money.

    so not having to spend 4K may mean you pay more in tax, but you ultimately you still save more money.

    • says

      Greg,
      I think the argument would be (obviously not the one I’m making) that you would then have $100,000 to invest at the cost of K2 (after the deduction). If you can go out and make more than K2 in your investments they you’d be “better offer”.
      Again, this only comes into play if you think that the bottom line is all that matters and you’re willing to ignore risk, faith, and temperament.

  6. Gabe says

    Hey Craig,

    Nice article! Debt freedom is something that financial calculators can’t measure!

    The one point I would like to make comes from these passages of scripture:

    Deuteronomy 25:15 – “A full and fair weight you shall have, a full and fair measure you shall have, that your days may be long in the land that the Lord your God is giving you.”

    Proverbs 11:1 – “A false balnace is an abomination to the Lord, but a just weight is his delight.”

    Proverbs 16:11 – “A just balance and scales are the Lord’s; all the weights in the bag are his work.”

    Proverbs 20:10 – “Unequal weights and unequal measures are both alike an abomination to the Lord.”

    What do honest weights and measures have to do with a paid off mortgage? Allow me to make the connection :)

    Because our government purposely inflates our currency (the dollar), everyday Americans are punished for holding their wealth in dollars. By purchasing a home with cash, you are holding that asset in dollars in the sense that you didn’t use financing to purchase. While I agree with that decision, you will still be punished in the future as inflation erodes that “investment” purchased with cash (because, at least historically, home prices have appreciated similarly to inflation).

    And to compound the problem, this purposeful inflation forces people who understand inflation to seek returns that at minimum match inflation, or else their purchasing power is eroded year after year. These same people are forced to purchase ownership (stock), debt (bonds), commodities, precious metals, and other asset classes to try to keep pace with inflation. The problem is that these assets have risk associated with ownership (2008 market crash anyone?). The end game is that people are forced to participate in financial matters they don’t fully understand. If the United States didn’t force inflation (a hidden tax) on the American people, there would never be a “purchase with cash or finance and invest the rest” decision.

    In summary:
    -Purposeful inflation goes against the biblical principal of honest weights and measures.
    -There would be no “buy with cash or finance and invest the difference” discussions if inflation didn’t exist.
    -Inflation is the worst of all taxes in that it takes advantage of the poor and uninformed.
    -Christians should speak out against these unjust monetary and fiscal policies.

    Congrats on the debt free home! I bet you sleep better at night!

    Gabe

  7. Jack says

    Craig, you and your wife made the right decision. You now own a house that God provided for you to be able to buy without going into debt, and it’s yours, not the bank’s, if you were to fall on hard times like Job. The money that you would have had to spend on a mortgage payment, had you chosen that route, can be used to further the Kingdom and/or saved for your future. I believe God will take care of His children, but sometimes He gives us opportunities like this to accomplish His plans.

  8. Wes Smith says

    Right choice! As you point out, God’s will is expressed through his word, not a calculator. You will cherish the freedom you have from a mortgage and be able to always serve God. I feel like I could go through a period of unemployment and still make my mortgage payments but there is a limit. If I were to be unemployed for an extended time (or get a new job with significantly less pay), I would have to change homes. That is not complete freedom. By paying of your house, you don’t have to worry about future income in regards to your home. If you took a mortgage and invested the cash, you would need to be concerned about the performance of the investments, time that could be spent serving God (our true purpose).

  9. Konce says

    Craig,

    Living by Biblical principles is “dumb” only as it relates to the “wisdom of this world”.

    You have stated many good points in this post, but I especially like #1. A couple of passages (among many) on the subject that hit home with me are found in Deuteronomy. In Deuteronomy 28, God lists blessings He will bring upon the nation of Israel if they will follow him (vss. 1-14) and curses He will bring upon them if they will not follow Him (vss. 15-68).

    It’s interesting to note that one of the relatively few specific blessings (compared to the immediately following curses) is that they will lend to other nations, but they will not borrow (vs. 12).

    One of the specific curses is that they will not lend, but rather borrow (vs. 44).

    Deut. 15:5-6 Also indicates the blessing of lending and not borrowing.

    I have yet to find a passage in Scripture that would paint being in debt in a positive light. No, like you, I’m not saying it’s a sin, but I have yet to hear a convincing point of view to get me to voluntarily partake in a curse.

    ~Konce

  10. says

    Nope, you’re not dumb at all. Even if interest rates were 0%, I would still applaud anybody who paid off their house. It gives you something you own, it reduces your monthly obligation, it frees you up to explore other opportunities with that money, and the burden of debt is completely released from your shoulders, which is something that each of us must measure and evaluate in terms of trade-off. Kudos to you.

  11. smitty says

    Congratulations Craig!
    I STRONGLY believe you are being smart paying cash for your house. The peace of mind not having a weekly/biweekly/monthly mortgage bill hanging over your head is outstanding. This free’s you to do the Lords work. Even if you have to redo; electrical, plumbing, etc. The cost is lower, even if you have to finance it (which you could do because your house is payed for)! The bottom line is your home is one of the four basics needs, (food, clothing, water, and shelter). I don’t see investments in that category! With change in the wind in your country, I would not count on mortgage interest tax credits being around for very long, as well as not a legitamate reason for long term debt.

  12. Jan says

    Craig,

    There’s nothing like the feeling of debtfree! Congratulations! We’re working towards the same goal in our household.

    jan

  13. says

    I applaud you for being able to buy a house without a loan. If I were able to do so, I would do it as well. You end up paying huge amounts of interest to the bank when a mortage is done.

  14. says

    In a word, no.

    As I note on CatholicFaithAndFitness.com, the usual argument for taking out a mortgage is the tax deduction. At the most, you get to deduct about one third of the interest you’re paying. That still means you’re out of pocket two-thirds of the interest paid.

    To be sure, if you mortgaged your house, you could, of course, use it to buy stocks or bonds. Thirty-year mortgage rates are around 3.5%; after the biggest deduction, they are 2.3%.

    Where would you put your money, if not in your house? In 30-year U.S. Gov’t bonds yielding 2.78%, which means your profit is less than 1/2 of 1% a year? Not very smart.

    Twenty-year AAA corporates, yielding a fully-taxable 3.79%? That’s basically breakeven with what you’re paying on your mortgage. After inflation, you’re a net loser.

    Vanguard’s 500 Index Fund? Over the last 10 years it has grown an average of 7.9% a year, including dividends. Netting out your mortgage interest, the real return of putting your money in the fund rather than the house is about 4.4% a year. Not bad, but certainly not great, either.

    If you don’t mortgage your house, you can grow wealthier faster. You can take the same amount you’d pay the mortgage company and pay yourself, investing in whatever mutual fund, bond or annuity you choose.

    The only real reason to mortgage your home is because you don’t have the money to buy it outright. You’ve got the money. Why the self-doubt?

    A footnote: You’ll want to make sure you have the cash to ride through bad times. Do you have a couple of years cash in the bank? Even if you do, it might make sense to take out a home equity line of credit, just in case.

    NOTE TO CRAIG: CFF post goes live around 0300 Thursday.

  15. EllenMarie says

    You will feel so much better inside knowing you don’t owe anyone or any entity. It is a feeling of freedom and a burden lifted off your shoulders. That is worth its weight in gold. I know of some who paid off their houses and it gives them peace of mind. I have 5 years left on 15 year mortgage and wish I could do it even sooner which I am trying but I also have kids in college and pay that so they will be debt free starting out. Plus I live in SF Bay Area where it has expensive housing and col. But we are debt free( x mortgage) and made wise decisions like sticking w a smaller house despite lots of kids and living off one income( but have two incomes)as much as possible while there are so many around us losing their homes. So we count our blessings and wish you many blessings and you will know you made the right choice for your family.

  16. says

    I think that is awesome that you paid cash for a house! I teach a class called “Start Up” where I encourage people to try to pay cash for a house. We are planning to have our home paid off in the next 5 years and I keep thinking of how awesome it will be to not have a mortgage payment!

  17. RobS says

    Dumb? No, unless you had other debts to settle or perhaps were buying a business and wanted to own that with cash. Your monthly fixed expenses have gotta be pretty low — giving you the option to save big and taking the risk out of things like job losses, etc. Must be nice! We’ve got the house to go and it’s on a 15-year at 2.75% so hope to join the club soon.

  18. says

    HECK NO!!!! Not foolish at all. Bankers and Realtors attempt to persuade you into a mortgage in order to make money. NOBODY can guarantee more than 3.25% on your money these days. You made a very sound and responsible decision by purchasing your house in cash. My wife and I took out a mortgage on our home and while we can certainly afford we are paying the mortgage off as fast as we can.

  19. says

    I agree with all of your comments EXCEPT #6. I don’t think you should pity someone just because they see a different approach to home ownership. You said that borrowing money isn’t sinful (in #1), why should you pity them? Yes, they will pay more for their house, but isn’t that their choice? And not sinful?

    My house isn’t paid for, but I have a plan where it will be in the next six months. When I bought a car a couple of years ago, I initially took out a loan, then paid it off in under a month (it gave me some flexibility).

    • says

      Randy,
      I know a lot of people who “own” a lot of things, but everything is mortgaged or bank owned. They work harder and pay more and more interest. Even thought it’s not sinful, pity is the best word that describes how I feel. I honestly feel sorry for them. I feel this way because they think they are winning, but I think they aren’t.
      Point #6 says that I don’t take advice with people I pity. I’d advise others to do the same. If you don’t want the lifestyle that someone else has, don’t take their advice or follow their example.

      • says

        Not intending to cast stones here (I’m certainly not qualified), but saying you “pity” someone reminds me of the story in Luke 18:9-14. I understand what you mean, and even agree somewhat, I’m just not sure I’d say it the same way.

        I’m certainly in agreement with you about the value of buying a house for cash. And the timing of this is very good for me as I have some decisions to make similar to this in the near future.

        Maybe I’m overly sensitive and shouldn’t be…

          • says

            Craig,
            Do you know that they are suffering, distressed or unhappy? Many people I know are very happy in their mortgaged homes. Mind you, I would be happy in a mortgage free home, saving the money I now pay the Bank. And good Lord willing, I’ll be there very soon. But I wouldn’t assume everyone feels the same way.

            If we as Christians aren’t careful, we can build a religion (or a cult) out of living debt free. We can begin to worship the idol of the burning mortgage and not worship the true God.

            I’m NOT saying you’re there, I just want to make sure we see this as something we can all see from different viewpoints.

          • says

            Randy,
            I 100000% agree with this phrase – “If we as Christians aren’t careful, we can build a religion (or a cult) out of living debt free. We can begin to worship the idol of the burning mortgage and not worship the true God.” I was actually just talking with my wife about that. In some ways we may thing that we’ll finally have ‘peace’ if we have a debt free xyz. It is possible to have debt and have Christ and have peace? I think so.

            Most people in those situations may not be suffering, distress, or unhappy. In fact, they are glibly the opposite. In fact the person I know who I mention in the post loves to boast and brag about all he owns (he is not a Christian). I know because he showed me a million pictures of cars and properties last time I saw him. He thinks somehow I’m more impressed with him because of all he has. Truth is I’m not. I feel sorry for him that he finds purpose, meaning, and significance in all he owns. I don’t intend to say that I’m better than him, but the truth is I think finding life in Christ is a better choice.

  20. Adam says

    I agree with many of the reasons provided here about paying off a house and I’m sure there is a sense of accomplishment in being totally debt-free, but I’m still struggling with whether paying off a mortgage really provides more “freedom” to handle life’s situations. The median price of a house in my area is $400,000, so even if I purchase a cheaper house (let’s say $200,000) I am locking up a large amount of money in one of the most illiquid places to put money that has high transaction costs (6% realtor fees) if I ever need to access the money. I personally feel like I have more freedom and flexibility if I had the $200k in the bank in case I became unemployed, sick, needed to move for family/job reasons, or wanted a new direction in life. Ok, maybe if I still had a couple of years of living expenses in cash after paying off the house or some type of pension, it might not feel so restricting.

      • Adam says

        We bought a home using a mortgage and my own internal debate is whether to use saved funds to pay down the mortgage vs. having available for easier access for investments, life changes, etc. Due to the cost of homes in my area, there really isn’t an option for someone in their 20s/30s to buy a home with cash (i suppose one could live with their parents for 10 years after college and save everything to buy a house with cash). I’m currently more comfortable having cash readily available than locked in a house, and am willing to pay 3% or so in net mortgage interest for that flexibility. I could see this perspective being different later in life.

  21. says

    Seriously Craig, I’m so glad you wrote this article. What an encouraging perspective on mortgages – or the lack thereof! If only more people saw the value in getting out of debt and staying out of debt, I think this country would be in a far better position.

  22. Roger says

    Good article Craig. If you were paying cash for a house, then I would be asking for a discount, cash buyers make the real estate agents and vendors job easier with a quick sale and transfer of title. As for first home buyers, I dont know how anyone could pay for a house in my country (Aust) without a mortgage. Although debt is debt, a mortgage is somewhat better than consumer debt, with many social and other benefits for the family.

  23. says

    Great job! I think that people go WAY too far with the notion of rates being low, as a reason to borrow for more. Debt is debt, and you made a smart choice. Frankly, from a practical standpoint, I think you made a wise decision.

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