DON'T pay cash for your home!

Wow, we'll bet that headline shocked a few of you. Here we are, the biggest evangelists in the world for paying off your mortgage, and we are telling you not to go out and pay cash for your home. Why in the world would we do this? Well, the following article nailed a lot of the reasons why. We'll quote the parts we agree with.

(Q) DEAR BOB: I plan on paying cash for my next residence. Are there any hidden dangers in paying cash? -- Mark N.

(A) DEAR MARK: Please don't do that ...A better alternative is to pay a 20 percent or 25 percent cash down payment and obtain a fixed-rate 15- or 30-year mortgage for the balance of the purchase price. Then, just in case you have purchased a bad house or a bad condo, you won't have all your nest egg tied up. After a few years of owning and living in the home, if all turns out well, then you can pay off the mortgage. (Of course, be sure it doesn't have a prepayment penalty.)

I still recall a nightmare letter I received a few years ago from a retiree who bought her retirement condo for all cash. Only after moving in did she discover that the complex was badly managed and occupied by about 50 percent renters, who caused many problems.

When she tried to sell her condo, she discovered that mortgage lenders either refused to loan to new buyers or charged high interest rates because of the high risk with so many renters. The only way she could get her cash out was to sell to another all-cash sucker.

So there you have it. While we are huge advocates of paying off your mortgage, we are also advocates of being smart with your money. Unless you know everything about the home you are purchasing and the neighborhood where you are purchasing it, you are wise to give yourself some time before the big payoff.