Today, I specifically want to look at the purchase of a new home in terms of some sort of a relevant cash flow model. I believe that interest rates are incredibly low today in comparison to historical averages. As such, it is quite possible that there are potential benefits to borrowing money at today’s historically low rates. However, this must be held in balance with biblical principles such as a full understanding that I am a steward of God’s money, not my own money. In addition, we know that the borrower is slave to the lender from the book of Proverbs. Also, carrying debt brings something called “risk” into the equation. If I don’t have a car payment, the car is totally mine. I don’t have to make any payments on the car. I can take the cash flow from my job and do what I want with it instead of sending it to the bank.
However, if I have purchased the car with debt, a portion of my cash flow each month must go to the car. If I lose my job and am no longer receiving a salary, I may no longer be able to make my car payment and the bank could take my car from me. This is why I believe it is responsible to have a manageable level of debt which is dependent on expense levels, salary level and life situation (i.e., do I have a wife and kids that I am supporting?).
Generally, I want to be safer when I have people that I am supporting. This includes a reasonable amount of cash in the bank such as 3-6 months of expenses. Today, I can get a 30-year mortgage at approx. 4% interest and a 7/1 ARM at approx. 3.25%. The house that I am looking to purchase is approx. $200K in value and I am trying to decide how much money I should put down (if any) towards the house. I will investigate three different scenarios over the next few days.
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