4 reasons why you should choose a mortgage instead of cash to buy a property in Portugal
To pay, or not to pay (in cash), that is the question...
If you are in this fortunate position, it’s a good question to think about. Common sense tells you that paying immediately outright for something is better than taking a loan, but there are some good arguments to choose a mortgage that you should consider.
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Keep your liquidity
One of the key reasons to not use cash is that you will lose liquidity. Although today you may not have need of your money, you never know what tomorrow brings. You can of course sell the property should you need to release your funds, but that’s not immediate liquidity. It could take several months or even years, and this could cause much stress if you need the money quickly, possibly involving selling for a lower price. So, instead of putting all your eggs in one basket, the best option is to save some for other purposes.
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Access to better financing conditions
If you have a large amount of money available for your purchase you can definitely negotiate better conditions on a mortgage. A good option is to make a significant down payment – this way you don’t spend all of your capital, your debt is considerably smaller and you can have access to a lower spread.
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Take advantage of investment opportunities
There is something in economy called ‘opportunity costs’, which refers to potential revenues lost on a missing opportunity to invest. And there is also a basic economic rule that diversifying investments is a safer option than putting a lot of resources on a single investment. Different principles but a common conclusion: if you have money available it is better to do have several investments, instead of spending most of it paying for a home in cash.
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Interest rates are low
We hear it all the time, that the interest rates are low. But what exactly does that mean? It means that you pay less for the money that is lent to you. An increase in competition in the mortgage market has also led to lower spreads and the good economic context keeps Euribor (the most common index of floating rates) at a negative level. All things considered, it’s a good time to take out a mortgage.
So, if you’re considering buying a house, just because you can pay for it in cash, it doesn’t mean that is your best option. Take your time, think it through and take the best decision you can.