Property Decisions: Mortgage or No Mortgage?

When deciding how to approach property ownership, one question always arises: should you buy a home outright or use a mortgage to maximise your financial potential? Each option offers distinct benefits, but the best choice depends on your long-term objectives, risk tolerance, and current financial circumstances.

Simon Athwal, Senior Financial Planner at Skybound Wealth, explains why understanding both options is crucial for making an informed decision and why for expats in Dubai investing in international property, leveraging a mortgage can provide flexibility and maximise returns.

Debt-Free Ownership Vs Mortgages for International Property

Buying a home outright offers undeniable peace of mind. Without monthly mortgage payments, the financial freedom can feel liberating, and you eliminate the risk of foreclosure. You’ll also save significantly by avoiding interest costs, which can add up to hundreds of thousands over a loan’s lifetime. Additionally, in uncertain markets, owning a debt-free property ensures stability, with no exposure to loan-related volatility.

However, this approach has its limitations. Tying up a significant amount of capital in one property leaves less liquidity for other investments that might yield higher returns. You’ll also miss out on potential tax benefits from mortgage interest deductions in many jurisdictions. In emergencies, accessing cash from a debt-free property can be challenging without selling or refinancing.

Using Mortgages for International Property: A Guide for Expats

On the other hand, using an expat mortgage in Dubai allows you to amplify your financial position. Borrowing preserves capital for other investments, potentially achieving better returns than the interest on your mortgage. Leverage through a mortgage for international property can amplify gains, as returns are calculated on the full property value.

For example, consider investing $100,000 as a down payment on a $500,000 property. A 10% appreciation results in a $50,000 gain—a 50% return on your initial investment. Mortgages also provide a hedge against inflation, as the real cost of your debt diminishes over time, and in many cases, mortgage interest is tax-deductible.

Yet, leveraging isn’t without risks. Interest costs add up, and if property values decline, homeowners may face negative equity. That’s why leveraging requires careful financial planning and risk management.

Why Leverage Often Wins

While the security of owning a home outright is appealing, leveraging a mortgage can open doors to exponential growth. Here’s why this approach is often more advantageous:

• Higher Returns: By spreading your capital across multiple properties, you diversify your investments and increase potential profits.
• Opportunity Cost: Cash tied up in a debt-free home misses out on opportunities to grow in higher-yielding investments.
• Inflation Advantage: Borrowing allows you to use today’s dollar value to repay with inflated dollars, effectively reducing the real cost of debt.

A Practical Comparison

Imagine you have $500,000:

• Debt-Free Approach: You buy one $500,000 property outright. After a 10% appreciation, your property is worth $550,000—a $50,000 gain (10% return).
• Leveraged Approach: You use the $500,000 as a 20% down payment on five properties, each worth $500,000. With the same 10% appreciation, your portfolio grows to $2.75M—a $250,000 gain (50% return).

Making Your Move

The choice between a debt-free home and leveraging through a mortgage depends on your financial goals, market conditions, and comfort with risk. For those prioritising growth and maximising returns, leveraging is often the more effective approach—but it requires careful planning and discipline.

Which path aligns with your goals? Debt-free security or the amplified potential of leverage? The decision is yours.