Home loans: when is it better to borrow and when is it better to save and pay in cash? | Business

During such changes, the question becomes relevant again – is it better to buy a home from savings, paying the full amount, or to take a loan from a bank? Bigbank specialists reveal that there is no unequivocal answer and everything depends on personal financial situation, “appetite” for risk or desire to invest.

Buying with cash is associated with peace of mind and speed

in 2020 even 57.2 percent homes were purchased by paying the full amount at once. It is true, as noted by Rolandas Norvilas, head of the Lithuanian branch of “Bigbank”, at the beginning of the pandemic, people had a lot of savings, a lot of time and were looking for ways to employ their money, and real estate is still the favorite investment of Lithuanians.

However, a similar trend was visible even before the pandemic. Buying a home by paying the full amount at once allows you to avoid long-term financial obligations. Such a buyer is not afraid of fluctuations in the markets or fluctuations in his personal bank account. Since the property purchased in this way becomes the property of the individual immediately, there is no need to worry about late payments or financial problems. In addition, such buyers are often still preferred by sellers.

However, R. Norvilas warns that even when buying a home with your own funds and paying the entire amount at once, the obligation is really there: “Real estate is not as liquid as some other investment products or money in a savings deposit – you cannot easily withdraw the invested funds, unless you decide sell the purchased real estate at a lower price. Therefore, even when buying a home and paying the full amount, you commit to a longer period of time.”

For many buyers, achieving that dream peace of mind will also require some time to save, which usually means belt-tightening or missing out on other investment opportunities.

A home loan gives you more options

It is difficult for some Lithuanians to buy a home without a loan – an average home in a residential area of ​​Vilnius can currently cost between 3,000 and 4,500 EUR per square meter. m., which means that 50 sq. m. housing suitable for a young family will cost up to 225 thousand. EUR – this is a considerable amount for people with average incomes, who earn up to EUR 2,600 “in their hands”. Meanwhile, a home loan allows you to purchase a home without having to pay the entire amount at once.

In addition, choosing a home loan allows you to grow your assets faster. Since 2008 100 thousand in Lithuania. The value of EUR decreased by 71.1 percent. and now in order to have the corresponding purchasing power, one should have 171.1 thousand. Eur.

After taking a loan for 100 thousand Eur even with a historically high 3 percent. EURIBOR and, for example, 1.7 percent. margin, what could be expected in 2008 at the end, in total, including the loan price, about 184 thousand would be paid for the house. Eur, even if interest rates never fall. According to the data of the Bank of Lithuania, real estate prices in Vilnius rose by as much as 59 percent from 2008 to 2023, that is, in just half of the loan term. In other words, even if you buy a home right before the Great Recession, you will accumulate more wealth than the loan will cost you.

One of the most obvious disadvantages of a loan is considered to be a long-term commitment to the creditor – for some, it is simply difficult to plan their finances for 30 years. For others, the loan provides an emotional burden, and some people cannot or do not want to invest their funds and therefore the cost of the loan due to interest is too high for them.

The choice should depend on wishes and expectations

Specialists advise that it is worth buying a home with a loan if you have a stable income and an investment strategy. This is especially beneficial when EURIBOR is at a low level, allowing you to take advantage of market opportunities and invest your remaining money elsewhere, potentially increasing your overall return.

It is worth buying a home with cash to avoid the financial and emotional burden of a loan or to prepare for retirement. It is also advisable to pay off the loan faster if you have a lower income, at a high EURIBOR or simply in cases where you do not have the necessary knowledge for investing.

R. Norvil reminds that EURIBOR is never stable: it falls, it rises. “So if the EURIBOR is currently high and the loan is more expensive, the interest rate will fall in the future and the loan will become cheaper.” In addition, even after receiving poor loan conditions, the loan can always be refinanced in the future.”