Home Renovations are expensive.. Should I only pay cash for them?
Is it a safety thing?  If the heat pump goes out you replace it immediately, if your floor looks bad but you aren't tripping, I would suggest saving.  Use the extra time to find a great deal and educate yourself on your options.  Maybe even take a class and learn to do it yourself. In these rough times, anything I can save for and pay cash I would.  The exception is if you can finance with 0% interest for a period of time and you have enough money to pay that off. The last consideration I can think of is if you plan to sell the home soon?  For that you might be getting more value than the loan and a real estate agent would be probably know best. I agree with MrChrister about first considering how necessary the renovations are (is it a nice-to-have, or a need-to-have?), as well as the importance of consulting a Realtor, if you are selling your home, as they will advise you wisely.  For instance, they might advise you to replace the linoleum with a neutral beige ceramic tile, as you would be assured a better resale value on your dollar spent, than if you were to replace the old linoleum with new linoleum (or laminate). There are many types of renovations that simply don't pay off, and others that do provide good return-on-investment (like intelligent kitchen and bathroom updates).  I found this ROI grid at lendingmax.ca (which is pretty consistent with what I remember reading in the Toronto Star this spring): Top 10 Renovations ~ Average return   on investment Painting and interior decorating = 73% Kitchen renovations = 72% Bathroom renovations = 68% Exterior painting = 65% Flooring upgrades = 62% Window/door replacement = 57% Family room addition = 51% Fireplace addition = 50% Basement renovation = 49% Furnace/heating updating = 48% If you are selling your home, and your Realtor has suggested improvements, they are probably necessary, and not doing them might serve as an impediment to quickly selling your home - so factor in the (potential) costs of carrying your home for additional weeks/months, or worse, overlapping mortage costs, if it takes your home longer to sell, and you end up owning two homes simultaneously for a bit. As far as your question (should you pay cash for renos or take out a loan), one factor to consider if you live in Canada is the Home Renovation Tax Credit, which applies to renos that take place until Feb 1, 2010, and can deduct up to $1,350.  So if you have to do a reno and yours qualifies for this tax credit, and you won't have the cash before that deadline, factor in the cost of borrowing vs. the $1,350. Good luck! I have a different take on this. If it would only take 3 months to save up to pay for it, line up the work now. Shop with your spouse to find the exact floor you want. By the time you hire the store to do the install, a month will have gone by, by the time the charge bill comes in, you'll be able to pay 2/3 off, and pay in full next month. Note: I see this was asked in December. For those carrying no debt at all, I'm not adverse to a purchase of this type getting partially floated on a credit card for a month or two. Not a pair of shoes, or golf clubs, but a kitchen floor? The $10 interest is worth it to not walk over a ripped up floor in your home. "It depends on your situation. If your floor is broken, fix it. If you don't have $1,000 on hand, spend appropriately. It seems silly to be doing ROI calculations on the potential impact on resale value.  It's sillier to blow money frivolously, whether you do so with cash or credit. I'm assuming that if you have a broken linoleum floor that the kitchen isn't new, so it doesn't make sense to install your ""dream tile"" into the kitchen. Skip the imported travertine or wood and buy some nice linoleum and hire a handyman to put it in or install it yourself. You can probably do this for $500-700. If you have longer term plans for the kitchen, get them on paper and figure out what exactly you want to do and when you'll be able to do it." I know that both Lowes and Home Depot (in Canada at least) will offer a 6 month deferred interest payment on all purchases over a certain dollar amount (IIRC, $500+), and sometimes run product specific 1 year deferred interest specials. This is a very effective way of financing renovations. Details: You've probably seen deferred interest -- It's very commonly used in furniture sales (No money down!!! No interest!!! Do not pay for 1 full year!!!)  (Personally, I think it's a plot by the exclamation point manufacturers) It works like this: Typically, I manage these types of purchases by dividing the principal by 6, and then adding 5%, and paying that amount each month.  Pay close attention to the end date, because you do not want to pay 22% interest on the entire amount.   This also requires that you watch your card balance carefully.  All payments are usually put to current purchases (i.e. those not under a plan) first, before they are applied to the plan balance.  So if you are paying 250 a month on the new floor, and run up another $150 on paint, You need to pay the entire new balance, and then the $250 floor payment in order for it to be applied correctly.  Also <shameless plug> http://diy.stackexchange.com </shameless plug>  Consider doing it yourself.
This is one way in which the scheme could work: You put your own property (home, car, piece of land) as a collateral and get a loan from a bank. You can also try to use the purchased property as security, but it may be difficult to get 100% loan-to-value. You use the money to buy a property that you expect will rise in value and/or provide rent income that is larger than the mortgage payment. Doing some renovations can help the value rise. You sell the property, pay back the loan and get the profits. If you are fast, you might be able to do this even before the first mortgage payment is due. So yeah, $0 of your own cash invested. But if the property doesn't rise in value, you may end up losing the collateral. "First of all, you need to stop using the card completely. Yes, that means you lose out on cash back, double miles, whatever, but that's how you got to this mess in the first place.  Switch to a cash budget until you can consistently spend less than you bring home.  Keep better track of your expenses, build an emergency fund, and learn to save for expenses rather than borrow for them until you have your spending under control.  If you can't cut your expenses any more, consider ways to increase your income (more hours at work, part-time jobs, sell stuff, etc.) Assuming that the employer match is 1-to-1 up to 4%, and you're saving an additional 7 percent to get to 15% total, I would definitely lower your contribution down to 4%, get the card paid off, and ONLY bump your contribution back up once you can safely pay off the card each month and know how much you can contribute.   It is not wise to put 15% in retirement if that causes you to spend more than your net take-home pay.  Your ""13%"" in your Roth is not guaranteed by any means, but the interest you pay on your credit card is. I would even be tempted to cut your retirement completely until the debt is paid, but more for motivational reasons that mathematical: I would be more concerned about living within your income at this point than getting a company match.  I believe the benefits of spending wisely will outweigh a temporary loss in matched retirement funds in the long run." 1) How does owning a home fit into my financial portfolio? Most seem to agree that at best it is a hedge against rent or dollar inflation, and at worst it should be viewed as a liability, and has no place alongside other real investments. Periods of high inflation are generally accompanied with high(er) interest rates. Any home is a liability, as has been pointed out in other answers; it costs money to live in, it costs money to keep in good shape, and it offers you no return unless you sell it for more than you have paid for it in total (in fact, as long as you have an outstanding mortgage, it actually costs you money to own, even when not considering things like property taxes, utilities etc.). The only way to make a home an investment is to rent it out for more than it costs you in total to own, but then you can't live in it instead. 2) How should one view payments on a home mortgage? How are they similar or different to investing in low-risk low-reward investments? Like JoeTaxpayer said in a comment, paying off your mortgage should be considered the same as putting money into a certificate of deposit with a term and return equivalent to your mortgage interest cost (adjusting for tax effects). What is important to remember about paying off a mortgage, besides the simple and not so unimportant fact that it lowers your financial risk over time, is that over time it improves your cash flow. If interest rates don't change (unlikely), then as long as you keep paying the interest vigilantly but don't pay down the principal (assuming that the bank is happy with such an arrangement), your monthly cost remains the same and will do so in perpetuity. You currently have a cash flow that enables you to pay down the principal on the loan, and are putting some fairly significant amount of money towards that end. Now, suppose that you were to lose your job, which means a significant cut in the household income. If this cut means that you can't afford paying down the mortgage at the same rate as before, you can always call the bank and tell them to stop the extra payments until you get your ducks back in the proverbial row. It's also possible, with a long history of paying on time and a loan significantly smaller than what the house would bring in in a sale, that you could renegotiate the loan with an extended term, which depending on the exact terms may lower your monthly cost further. If the size of the loan is largely the same as or perhaps even exceeds the market value of the house, the bank would be a lot more unlikely to cooperate in such a scenario. It's also a good idea to at the very least aim to be free of debt by the time you retire. Even if one assumes that the pension systems will be the same by then as they are now (some don't, but that's a completely different question), you are likely to see a significant cut in cash flow on retirement day. Any fixed expenses which cannot easily be cut if needed are going to become a lot more of a liability when you are actually at least in part living off your savings rather than contributing to them. The earlier you get the mortgage paid off, the earlier you will have the freedom to put into other forms of savings the money which is now going not just to principal but to interest as well. What is important to consider is that paying off a mortgage is a very illiquid form of savings; on the other hand, money in stocks, bonds, various mutual funds, and savings accounts, tends to be highly liquid. It is always a good idea to have some savings in easily accessible form, some of it in very low-risk investments such as a simple interest-bearing savings account or government bonds (despite their low rate of return) before you start to aggressively pay down loans, because (particularly when you own a home) you never know when something might come up that ends up costing a fair chunk of money. Your first problem is looking at these as monthly expenses rather than looking longer-term at how to remove the expenses. You have a $600/month loan, but what is the interest rate? If you paid that loan more aggressively it would free up 10% of your income, but you can't pay the loan aggressively if you don't have an emergency fund. You need enough cash-flow to take care of emergencies so you don't incur more debt on less advantageous terms. The way you describe the problem, it appears that you don't know where all of the money is going, so the first step is to track all of your expenses and formulate a budget. The budget is a plan on how to spend the money for next month. At least 10% should be money you are saving for a short-term emergency fund. Another 10% should be money you are saving for retirement. Until you have 6 months of expenses saved for your emergency fund, you need to skip luxuries like taxi rides and maybe you need to reduce the amount you send home. 22% is a large amount and unless your parents are using that money to become independent (so that they won't rely on your contributions forever) it will only prevent you from becoming wealthy enough to really help them later. Only you can determine what can be cut from your monthly expenses--but if you want to save--spending less is required. For example: do I need a realtor, or can I do their job myself? In general in the United States the real estate agent fee is paid by the seller of the property. Their agent will be more than happy keep the entire fee if they don't have to split it with your agent.  If you don't have an agent you will be missing somebody who can help you find the property that meets your needs. They can also help explain what the different parts of the contract mean and give you advice regarding making an offer. Do I need to pay for an inspection, or am I likely to save enough   money from skipping it to cover potential problems that they would   have caught? Inspections are optional. Though the amount you are risking is the entire value of the purchase. If the property has a problem in the foundation, or the septic system, or the plumbing or electrical the cost to fix the issue could render the purchase not worth doing. If you discover the problem a year later and you have to repair the house and have to find temporary housing for a few months, you will regret skipping the inspection. What are some of the ways I can cut expenses on closing costs? Is   there any low-hanging fruit? You need to do your homework. When you are ready to purchase a property take good look at the good faith estimate and look at each item.  Ask them what the expense covers. Push back against those that seem optional or excessive. Keep in mind that moving the closing date from the end of a month to the start of the next month only changes the timing those charges, it doesn't really save you money. Rolling the costs into the loan sound easy but you have to think about. It means that you will be paying interest on those charges for the life of the loan. It is good that you are starting to think about all the costs. "I would not advise buying a home because you think you will make money. (1) Return on Investment If you have $290K, have you asked yourself how much your investment would grow if you invested it in other ways.  At 2% growth re-invested, your money would grow to $307K (or 17K) after 4 years.  $290,000 * 1.02 =   $295,800 * 1.02 =   $301,716 * 1.02 =   $307,750  (2) Homeowner Experience Without the experience of owning your own home, it's hard to know relate to complaints and expectations that your tenants might have.  It's hard to know to anticipate problems and repairs and costs due to home ownership.  Homeowners have many decisions to make regarding upkeep of a home.  The costs are difficult to predict if you have no experience to draw upon. (3) Managing Rental Property: It's a ""job"".  You either take on this responsibility, or you subcontract it to someone else who you pay to manage the property and contracts!  Is this something you are passionate about doing? If you need to travel back to the home, it's clear across country.  It's not close enough to visit." There is (almost) always money involved somewhere, but it doesn't have to come from you.  It can be investors, credit cards, or even seller-financing (I've done all 3). Examples: If you can find partners with the money to make the deals happen, then your job is to put the deal together.  Find the properties, negotiate the price, even get the property under contract (all without any obligation or cost on your part... yes it absolutely can be done).  Then your partners will fund the deal if it's good enough and their terms are met, etc. In some areas you can put a property on a credit card.  If you find a house say for $25,000 that will rent for $300/month, and you can put it on a credit card (especially at zero percent for a year or something similar), then you can generate cashflow as a landlord without putting up any cash of your own on the purchase.  Of course there are many risks associated with landlording and i could tell you horror stories... but we're not addressing that here. You can negotiate a sale with an owner who agrees to finance the entire purchase for you.  I once purchased 3 properties at once this way from a seller who financed the entire sale, all closing costs, everything, this way.  Of course they needed a lot of repair and such so I had to fund that another way, but at least the purchase itself cost me no money out of pocket. So these infomercials/courses are not inherently scams in the sense that what they are teaching is (usually... I'm sure there are exceptions) true.  However they generally give you enough information to get into trouble, and not out.  But that's what true learning is... it's getting into trouble and finding a way out that doesn't kill you.  =)  That's called experience, and you can't buy that for any price. "The other answers have touched on amortization, early payment, computation of interest, etc, which are all very important, but I think there's another way to understand the importance of knowing the P/I breakdown. The question mentions the loan payment as ""cash outflow"". That is true, but from an accounting perspective (disclaimer: I am not an accountant, but I know enough of the basics to be dangerous), the outflow needs to be directed to different accounts. The loan principal appears as a liability on your personal balance sheet, which you could use, for example, in determining net worth. The principal amount in your payment should be applied to reduce the liability account. The interest payment goes into the expense account.  Another way to look at it is that the principal, while it does reduce your cash account, can be thought of as an internal transfer to the liability account, thus reducing the size of the liability. The interest payment cannot. Aside: From this perspective, the value of the home is an asset, and the difference between the asset account and the loan liability account is the equity in the house (as pointed out in different language by the accepted answer). Of course, precisely determining the value of an illiquid asset like a house at any given moment pretty much requires you to actually sell it, so those accounts are hard to maintain in real-time (the liability of the loan is much easier to track)."