There are many financial "gurus" out there telling you to buy a house with cash or to pay off your mortgage early. It sounds like a great idea on the surface, but you could miss out on thousands if you take that advice. If you can't get an interest rate under 9 percent, ignore what I'm about to say...
There are two BIG reasons to use your banker's money for your house:
1. Mortgage interest is tax deductible
example: A household in the 28% tax bracket with a $200,000 mortgage amortized over 30 years with an interest rate of 5% will save $2,781 in taxes during the first 12 months of the loan. That same household will save $52,223 in taxes over the life of the loan!
2. You can invest your cash instead (and make up to thousands more than your conservative uncle Ed)
example: In our $200,000 example above, because you are not tying up all that cash in a house, you can invest the $200,000 into an index fund. The S&P 500 had average annualized returns of 11.24% over the last 30 years (1980-2009).
$200,000 invested into an S&P 500 index fund in 1980 and would be valued at $4,679,280 in 2009! If uncle Ed only knew...
Make even greater returns: The Buffett System