Should You Pay Cash for a Home or Get a Loan? Should You Hurry to Pay Off Your Mortgage?

This decision depends on a number of factors which can be different for different people. First and foremost is having the financial wherewithal to be able to make the choice.

Obviously, paying cash for a home means the home is fully paid for. But if most or all of your cash is tied up in the home, putting all your eggs in one basket does expose you to some risk: First, your cash is all tied up in one place and if you suddenly need it, you cannot get it out easily.

One way to be proactive about this is to always have an 'emergency fund' of 6-12 months of living expenses set aside.

There is always a chance that a "should not pass up!" investment opportunity might present itself, and with all your money tied up in the house, you won't be able to take advantage of it.

Paying cash also means losing out on the tax-deductible interest rate of a mortgage. If you stay in your home for minimum of 2 years, you will be sheltered from up to $250,000 in capital gains if you are single and $500,000 if you are married. Returns on other investments are taxable, which minimizes your return.

In the end, it will take an analysis with a CPA to determine your personal best route. It depends on so many things: If you take out a mortgage and have lots of cash on hand, are you actually going to invest it wisely or blow it? You know yourself.

If you do invest it, how much risk can you tolerate? It's not always easy to predict return and risk level on stocks and bonds, whereas real estate, though at the mercy of the market, is a bit more stable and predictable.