I believe you should always pay with cash when you have the cash AS LONG AS you're not compromising your safety net (emergency fund). I think it's poor advice to rely on refinancing if you should get in a financial bind.
1. If the financial crunch is that you've lost your job, good luck finding someone who'll finance you.
2. If you do get financed, you're then paying interest on an amount you couldn't afford in the first place (which is why you sought out a loan).
3. If you've paid cash for your homes and had no other loan or debts in a long time, your FICO score will be low (and you know what that means when applying for loans).
The 3rd point is something I have a problem with in regards to the prevalence of FICO's use!
...soap box...
Our society relies too heavily on FICO and is getting lazier about common sense lending. Specifically, I'm thinking of the situation where a person has paid all debts back, paid off her mortgage, and has several savings accounts for different purchase goals. She pays for everything in cash and is so financially responsible that she has saved in advance money for big purchases like school, car and emergencies and doesn't have a need for installment loans or car loans. However, say this person receives a job transfer to a more expensive state, sells her current home, applies the earnings to a new home in the new state but still needs to take out a loan to make up the difference in home price. Her FICO is terribly low (if existent at all) because she has no current debt/loan records on file. What then?
She is charged a higher interest for not having a debt history on file. She is essentially being punished for becoming self-reliant and not carrying debt.
Our dependence on FICO is contributing in a BIG WAY to a culture dependent on loans!
/soap box
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