by Michael Mwika 
Buying a home is one of the most significant financial decisions you will ever make. In Kenya, the main challenge to home ownership is financing, just like everywhere else.
Once you find the right property, the next critical decision is how to pay for it. Should you buy the home outright with cash or take out a mortgage and pay for it over time?
Each option comes with its benefits and challenges, and the right choice depends on your financial situation, goals, and long-term plans.
In this article, we will explore both options in detail, weighing the pros and cons to help you make an informed decision, especially for the Kenyan market.
Pros and Cons of buying a property with Cash
Not many people in Kenya can afford to buy a house with cash.
For those who can afford it, buying a home with cash offers several distinct advantages and disadvantages as well.
The Benefits of Buying a Home with Cash
This option not only eliminates the need for a mortgage but also provides several financial and lifestyle benefits. Let us look at these benefits in the Kenyan market.
1. No Monthly Mortgage Payments
One of the most appealing aspects of paying cash for a home is that you won’t have a monthly mortgage payment.
Once you’ve purchased the property, it’s entirely yours, and you don’t have to worry about interest or mortgage installments.
This can provide significant peace of mind, as you’ll have more disposable income for savings, investments, or everyday expenses.
2. No Interest Payments
Mortgages come with interest payments, which can add a significant amount to the overall cost of the home.
By paying cash, you avoid these interest charges entirely, which can save you thousands of dollars over the life of the mortgage.
Over time, even a low-interest mortgage can become expensive, so eliminating this cost can lead to substantial savings.
3. Stronger Negotiating Power
Cash buyers often have a stronger position when negotiating the purchase price of a home. Sellers tend to prefer cash transactions because they are quicker, and there is no risk of financing falling through.
A cash offer can give you leverage to negotiate a lower price or more favorable terms, as it shows the seller that you are serious and financially ready.
4. Faster Closing Process
Without the need for mortgage approval, the home-buying process is much faster when you pay in cash.
You won’t have to wait for a lender to process your loan or worry about any potential delays due to financing issues. This can be especially beneficial in competitive markets where time is of the essence.
5. No Risk of Foreclosure
Since you don’t have a mortgage, there’s no risk of losing your home due to missed payments. This provides a sense of security, particularly during times of economic uncertainty or personal financial difficulties.
6. Full Home Ownership
Owning your home outright means that you have full ownership without any liens or obligations to a lender. This can be an empowering feeling, knowing that your home is entirely yours from day one.
The Downsides of Paying Cash
While buying a home with cash has several advantages, it’s important to consider the potential downsides as well.
1. Tying Up Capital
Paying cash for a home can tie up a significant amount of your liquid assets.
This means that you may have less money available for other investments, emergencies, or lifestyle expenses.
While homeownership is an excellent investment, real estate is not as liquid as stocks, bonds, or savings accounts, which can be accessed quickly in times of need.
2. Missed Investment Opportunities
By using a large sum of cash to buy a home, you may miss out on potential investment opportunities that could offer higher returns. For example, if you were to invest the cash in stocks, bonds, or other ventures, you might earn more in returns than you would save on mortgage interest.
In this sense, paying cash could represent an opportunity cost.
3. No Tax Deductions
Mortgage interest payments are tax-deductible in many countries, which can reduce your taxable income and potentially save you money. When you pay cash, you lose out on this tax benefit, which could make a mortgage more appealing from a tax perspective.
Pros and Cons of Buying Properties Using a Mortgage
Taking out a mortgage to buy a home is the most common route for homebuyers.
While its biggest disadvantage is taking on debt, it offers several advantages that make it an attractive option for many.
The Benefits of Buying a Home with a Mortgage
1. Preserving Liquidity
By opting for a mortgage, you can preserve a significant amount of your cash for other purposes. This allows you to maintain liquidity for emergencies, investments, or future goals. Keeping a cash reserve can provide financial flexibility and security, which may be more valuable than owning your home outright.
2. Leverage and Growth
A mortgage allows you to leverage your money, meaning you can invest a portion of your wealth into your home while keeping the rest for other opportunities.
Real estate generally appreciates over time, and with a mortgage, you can benefit from this appreciation without tying up all your cash. If your property increases in value, you could end up with a significant return on a relatively small initial investment (your down payment).
3. Low Interest Rates
In recent years, mortgage interest rates have been historically low. If you qualify for a low-interest mortgage, borrowing the money can be an inexpensive way to finance your home purchase.
In this case, taking a mortgage could be financially advantageous, allowing you to invest your cash in higher-return opportunities while taking advantage of cheap borrowing costs.
4. Tax Benefits
Many countries offer tax deductions for mortgage interest payments, which can reduce your overall tax liability. This tax benefit can make mortgages more appealing, especially if you’re in a higher tax bracket. In some cases, the tax savings may offset a portion of the interest payments, making the overall cost of borrowing more manageable.
5. Building Credit
By consistently making mortgage payments on time, you can build or improve your credit score. A good credit score is essential for obtaining favorable interest rates on future loans, such as car loans, personal loans, or even credit cards.
A mortgage is considered “good debt” and can enhance your credit profile if managed responsibly.
6. Greater Flexibility in Price Range
With a mortgage, you may be able to afford a more expensive home than you would if you were paying cash.
This increased buying power can open up more options in terms of location, size, and features, allowing you to find a home that better suits your needs and preferences.
The Downsides of Buying a Home with a Mortgage
While there are clear benefits to taking out a mortgage, it’s important to understand the potential risks and downsides.
1. Interest Payments
One of the most significant disadvantages of a mortgage is the interest you’ll pay over time. Even with low interest rates, the total interest paid over a 15- or 30-year loan can add up to a substantial amount. This increases the overall cost of your home significantly.
2. Monthly Payments
With a mortgage, you’re committed to making monthly payments for the life of the loan. This can be a financial burden, especially if your income fluctuates or you encounter unexpected expenses.
Missing payments can result in penalties, and in the worst-case scenario, foreclosure.
3. Risk of Foreclosure
If you’re unable to make your mortgage payments, you risk losing your home to foreclosure. This is a significant risk, particularly if you experience a job loss, medical emergency, or other financial hardship that affects your ability to pay.
Making the Right Decision: Cash vs. Mortgage
When deciding whether to buy a home with cash or take out a mortgage, consider the following factors:
- Your Financial Situation: If you have sufficient cash reserves and can afford to pay for a home outright without compromising your liquidity or other financial goals, paying cash may be the best option. However, if tying up all your cash in a home purchase would leave you financially strained, a mortgage might be a better choice.
- Your Investment Strategy: If you believe you can earn a higher return on your cash by investing it elsewhere, a mortgage could provide a more financially sound strategy. On the other hand, if you prefer the security of owning your home outright and avoiding debt, paying cash might align better with your goals.
- Current Interest Rates: When interest rates are low, mortgages become more attractive because the cost of borrowing is minimal. Conversely, when interest rates are high, paying cash may be a more appealing option to avoid high-interest payments.
- Long-Term Plans: Consider how long you plan to stay in the home. If this is your “forever home,” paying cash might make more sense. However, if you plan to move within a few years, taking out a mortgage could provide more flexibility.
Final word
Choosing between paying cash or taking a mortgage to buy a home is a personal decision that depends on your financial situation, goals, and preferences. Both options offer distinct advantages and drawbacks, so it’s essential to carefully evaluate your options before making a decision.
Whether you choose to pay cash or finance your home, making an informed choice will help you feel confident and secure in your new home purchase.
