Financing a property without a mortgage: the advantages
In general, it should be the safest way to finance a property without a mortgage if it doesn’t tie up all your liquid funds. In most cases, however, it is not possible to finance the dream property with your own funds, because it is simply too expensive and there are not so many savings available. The interest on a mortgage is currently very low, but obviously a mortgage always involves a commitment on the borrowed capital, what? Purchased? becomes. This purchase works through the interest that is owed in addition to the actual purchase price of the property. This can be more or less expensive depending on the current interest rate situation.
Those who finance the property without a mortgage therefore do not deliver additional money to the bank, but invests everything in the property. Critics might say that money can be invested more profitably in the capital market, so that the return is greater than the interest to be paid. That might be correct, but there is always the risk of capital market default to consider. Even those who invest their money and therefore take a risk can lose. This in turn means that there is much less equity available and the property must also be financed with a mortgage. Good dividends are possible, but associated with high risks and price fluctuations.
Disadvantages of financing a property through a mortgage
The advantages of financing a property with own capital already explain the disadvantages of financing with a mortgage. Especially here the bank earns, because the interest rates, which vary according to the creditworthiness and duration of the mortgage, amount to many thousands of francs, for which the bank only has to provide the desired money. Financing your property with a mortgage provides some financial freedom. The saved capital can flow into further investments that are related to the property, so there are no financial shortfalls in terms of repair and renovation costs or costs for the initial furnishing of the new home. Without a mortgage, therefore, less money is committed, although the long-term nature of the tied capital can be a problem.
Financing the property with a mortgage can have another disadvantage: the age of the borrower. After a certain age, banks are very reluctant to grant a loan because they assume that the person in question may no longer be able to repay. Most people over the age of 60 are viewed critically. Therefore, in turn, much more guarantees are needed with which to cushion any payment default.
Conclusion: good arguments for financing with a mortgage
Even if a mortgage is tied to the bank and interest must be paid, which makes the property more expensive, this is often cheaper or even the only way to buy your apartment or house. Equity is available for other expenses, and there is usually not enough equity to cover the purchase price, additional fees, and even set up costs without running into another financial bottleneck.
–
