Although it may seem contradictory, many rich people choose to take a mortgage to finance the purchase of a house instead of paying cash. Why do it if they have the resources to buy the property outright? Here are some reasons.
1: Opportunity Cost
The most important reason to take out a mortgage is that the money used to buy a house in cash could be invested in most profitable investment opportunities. By taking out a mortgage, the rich can keep their money in investments that generate additional income.
Buying a house with cash means losing investment opportunities || Source: Special
These people think about acquiring assets that can generate higher returns than the interest that would be saved in case of not taking the mortgage.
2. The mortgage is not expensive
The rich tend to have good credit, which means they can get a low interest rate. Also, the cost of the mortgage is not significant compared to your income.
In the long run, inflation helps offset the burden of mortgage payments || Source: Unsplash
In addition, a mortgage can offer protection against inflation in the long run, as mortgage payments remain constant, while money will continue to lose purchasing power over time. That is, with the passage of time, the mortgage payments become “cheaper”.
3: Tax Deductions
The owners can deduct interest of your mortgage on your statements tax, which reduces your tax burden. However, this may have certain restrictions, depending on the legislation of each country.
In short, the rich may use a mortgage to finance a home because it allows them to keep their money in more profitable investments, get a low interest rate, take advantage of tax breaks, and get long-term inflation protection.
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