Q. I am planning on buying a condominium and I can afford to pay as much as half of it with cash. But with mortgage rates going up nearly every week, should I get the largest loan that I can qualify for now? I know I won't be able to borrow at these relatively low rates much longer.
A. There are two schools of thought on borrowing.
One says that you should use as much "OPM"—other people's money—as you can in a purchase, since it frees up your own cash for other investments.
This camp especially encourages you to leverage your primary residence, since you get a tax deduction for mortgage interest paid. But your savings over time will depend on your income level and whether or not you itemize.
I think this strategy of taking out a bigger loan only makes sense if you have enough financial discipline to save the cash you'd otherwise spend on housing, and can find alternative investments that reliably give you better returns than you'd spend on mortgage interest, factoring in the tax break.
Most people don't have this sort of discipline and good luck with their investments.
So I agree with San Ramon, Calif., certified financial planner Kirk Dobson, who says that the advice he gives all of his clients is to "live below their means and keep untouchable cash reserves."
These reserves should be enough to cover at least six months of living expenses, plus a few thousand extra to cover the unexpected curveballs that life throws at everyone, like the news that your air conditioner is failing or your daughter needs braces.
Mr. Dobson says that you should look for a loan that you can afford comfortably after you've socked away these reserves—not the maximum loan that you get.
![[image]](http://si.wsj.net/public/resources/images/OB-YX368_houset_G_20130913164157.jpg)
One says that you should use as much "OPM"—other people's money—as you can in a purchase, since it frees up your own cash for other investments.
This camp especially encourages you to leverage your primary residence, since you get a tax deduction for mortgage interest paid. But your savings over time will depend on your income level and whether or not you itemize.
I think this strategy of taking out a bigger loan only makes sense if you have enough financial discipline to save the cash you'd otherwise spend on housing, and can find alternative investments that reliably give you better returns than you'd spend on mortgage interest, factoring in the tax break.
Most people don't have this sort of discipline and good luck with their investments.
So I agree with San Ramon, Calif., certified financial planner Kirk Dobson, who says that the advice he gives all of his clients is to "live below their means and keep untouchable cash reserves."
These reserves should be enough to cover at least six months of living expenses, plus a few thousand extra to cover the unexpected curveballs that life throws at everyone, like the news that your air conditioner is failing or your daughter needs braces.
Mr. Dobson says that you should look for a loan that you can afford comfortably after you've socked away these reserves—not the maximum loan that you get.
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