It’s a good problem to have. You’re ready to buy a new home, and you’ve got enough money saved up to purchase the home outright. You’re trying to decide whether you should pay cash for the home or whether you should get a home loan. This is the kind of financial decision that many folks would love to have to be able to make.

While the obvious answer to this question would seem to be “yes,” that you should always pay cash rather than going into debt, the fact of the matter is that it’s not always quite so simple. There are some circumstances in which you’re actually better of getting a home loan and investing your cash somewhere else.

The basic calculation

Like many things in life, the answer to this question lies in a rather simple formula. Will you have more money, in the long term, if you invest your cash and take out a mortgage than if you pay cash for the house?

Let’s suppose that you can get a mortgage at a rate of 5.5 percent. That’s a relatively low rate, and right now mortgage rates are near an all-time low. While you can’t count on that rate forever, it is what it is for now.

The first question is how much you’ll be able to earn on your cash if you invest it. Will you be able to earn 9 percent? 2 percent? Somewhere in between? The difference between what you can earn and what you pay for your mortgage is the amount of additional profit you’ll make over time.

Other important factors

Interest rate isn’t the only factor, however. When you have a mortgage, there are usually certain tax advantages. The interest that you pay on your mortgage is, generally speaking, a tax deduction. Obviously, you should check with your accountant or tax attorney for specifics.

You also need to recognize that you’ll pay taxes on the profits if you invest your cash. Those taxes can eat into your margin, so you need to know what they’ll be, too.

No guarantees

You can’t be sure that any given investment is going to get a certain rate of return. Even the safest, soundest investments can, as the recent financial crisis has shown, wind up losing you money. There is always the possibility that, if you invest your money instead of using it to pay cash, you’ll come out behind.

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