I'm in the process of paying cash on a short sale house, assuming the bank agrees to their losses. What would be the benefits of getting a loan if I don't need it? I plan on leveraging later on a nicer place after the market starts appreciating again, which could be many years from now.
If you borrow $100,000 at 6.4% and are in a 25% tax bracket, the cost of the loan is actually 4.8% with the mortgage deduction. Loan payment WITHOUT the deduction: about $626 P&I after the tax deduction: about $520.
The loan payment is the same year after the year, but the investment compounds. If you make 7.2%, tax free the investment pays 7,200 the first year. In the 11th year it pays $14,400.
Equity in a house has no rate of return, it's not very liquid (less so as you get older, and if something happens to you), the bank will say "who are you" if you try to borrow.
I might add, this is how banks make money. The give you 3% for your deposit and then they loan at 6.4 or in the case of credit cards 10-20%. So if you can borrow at 4.8 and receive 7.2 how much do you want?