Published by REALTOR.com | August 5, 2024
With interest hovering around 7%, people are looking for low- or no-interest ways to pay for a home and choosing to liquidate their investment funds instead.
Most people think buying a home automatically involves taking on a 30-year mortgage. But these days, homebuyers are increasingly opting for an alternative route—using their investments to bypass a home loan altogether.
Mortgages have traditionally been considered a “good” type of debt because of their relatively low interest rates, compared to personal loans.
Yet, with interest hovering around 7%, people are looking for low- or no-interest ways to pay for a home and choosing to liquidate their investment funds instead.
So, should you use investment funds to purchase a home and forgo a mortgage? It all depends on your investment portfolio and your appetite for risk.
Cashing out investments “can be a strategic move, driven by unique market dynamics,” says Kris Mullins, CMO of investment firm Capital Max. Mullins says using investment funds can save money in the long run, especially if you’re facing high interest rates like we see now.
Buying real estate with your investments “circumvents the immediate financial strain of a mortgage and strategically positions the investor to benefit from both real estate appreciation and the liquidity of their remaining portfolio,” adds Mullins.
This approach leverages the advantages of real estate investment without tying up capital in mortgage payments—and can save a ton in interest payments to boot.
Your age, employment status, and holdings size will all factor into whether using investment funds for a home purchase makes sense. You should ensure you’re meeting your retirement goals “or have enough cash flow after you buy a house to make up for the lost savings,” says certified financial planner R.J. Weiss.
He says that if you have enough cash flow to replenish your investment accounts after buying the home, using your investments for the purchase is not irresponsible.
However, Mullins stresses that you should also consider your “investment time horizon” as you decide whether to use investment money. An investment time horizon is the length of time you can keep cash in investments without dipping into it for major expenses.
