Which will save more money....20% down payment with tax breaks, or paying the full purchase price of a house?

I have decided to buy a brand new $350,000 single-family home near Sacramento, CA. I want to know if it makes more sense to do a down payment (ie: 20%....$70k for this scenario) and take advantage of the interest tax advantages a $280k mortgage will bring... or should I buy the house outright (I have $400k cash saved up) and save money by not having to pay mortgage payments? My wife and I both have FICO scores above 750, and we make a combined total income of about $500k every year. Please let me know which scenario you think will save us the most money. Thanks! Also, I've been told that doing a 20% down payment (avoid paying PMI) is the way to go since I can invest the other cash in a vehicle that is likely to give me a bigger return that the interest rate of my mortgage (would be 6% or so). This seems to make sense. Thoughts???

Public Comments

1. My personal opinion would be to put 20% down and get a loan for the balance of your purchase price. THEN, I would invest the rest of that cash. For example, buy a rental property with the remainder of the cash and collect the rents. Your return on investment (if you bought the right place) will be much better than the return on your money in most other places. In addition, the interest you pay on your primary residence can be deducted from your taxes.
2. Now, why would you want to get a loan just to save tax money on interest paid to a bank? You're still paying interest, and, unless your investments can reasonably surpass the after-tax interest rate, I'd suggest paying in cash. Even with the additional information you provided, you still need to consider whether the amount you are financing to invest will generate more money than simply putting it towards the house purchase and taking the money you would've used towards the monthly payment to replenish your emergency and using it to invest. And then there is the issue of risk: how much risk are you willing to endure to get 6% average return on investment ? Because we all know that 6% average can mean 15% one year and -9% the next. Also, the uncertainty of home values doesn't make it a sure thing that you'll make money on your home when you sell. And can you guarantee that you and your wife will always make $500k/yr to cover the payments long term? It's no fun being laid off, living off your one-year's severance wondering if you'll run out of money while making the sure payments. If you're uncomfortable essentially cashing out your emergency fund, I'd look to finance about half the amount or so and borrow for about 10-15 yrs. You could also go with a HELOC after paying in cash, so at least you have the ability to tap your equity in an emergency. Just don't make the mistake of using your equity like a piggy bank or ATM machine. This is really more about risk mitigation than maximizing return, but I think, in general, most people are better off sleeping well at night than wondering if their tanking investments might force them out of their homes. Good luck, in any case.
3. pay cash for everything. i paid cash for a house . why pay interest if you do not have to. so you get a tax break . big deal. you are always better off not having debt. like with cars. i would never finance a car. i would only buy a car cash. save up the money and buy cash
4. Without a doubt paying cash (and NO interest) will save you more money. Even in your tax bracket the mortgage interest savings isn't much. Consider that you and your wife would get the standard deduction for a couple ($10,500) and only interest above and beyond that saves you any tax money. Even then it would save you about $0.30-$0.35 for every dollar you spend on interest... A dumb way to save... Again, no question that you would spend less money (or save more money) by not having a mortgage and paying no mortgage interest. good luck!
5. Purchase the house 20% down. Yes PMI is good to skip. Use the rest to purchase some investment properties or apartments if you want. Than take the extra income and put back into your house payment. Take a 15 year fix make double payments and pay it all of in 7 years while getting the tax breaks. Beat the bank and get tax breaks isnt that what we all like to do. If you need some listing on REO's please contact me its a great time to purchase investments ask the Bay Area people that I talk to daily.