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Does Your Mortgage Count as Debt?

By Debt.ca on October 26, 2012 No Comments

Sick and tired of credit card debt, lines of credit, collections calls, and generally being out of control with your spending? It’s time to commit to getting on a budget and paying off your debts.

Most of the amounts are manageable: $1,500 on the credit card, $4,000 on your line of credit, maybe $300 on an old phone bill, and say $14,000 on a car.  It’s a lot, but it’s doable.  Then you look at the last debt you have: your mortgage, $286,000.

Whatever your strategy for paying off your debts, you’ll have to ask the question at some point: When will I be debt-free?  If you owe nothing to anyone except your mortgage, are you debt-free?  A lot of people answer yes to this.

Reasons You Think Your Mortgage is not Debt

Your home is an asset – Unlike your car and whatever you purchased on your credit card, your house is, in theory, an asset.  Over the life of your mortgage, at least in most cases, that asset will go up in value.  When you sell it, you should make back most of the interest you paid on the loan.  Businesses borrow money to make more money, and now you are too, right?

You have to live somewhere – Sure you could rent, but then you’d just be throwing money away.  By paying interest on a loan, at least the money comes back to you at the end, so it makes sense.

Everyone has one – A recent poll conducted by Harris-Decima found that on average people finish paying off their mortgage when they’re 48 years old.  That means most people, for a good portion of their adult life, carry mortgage debt.  It’s just the way it is, right?

Reasons Your Mortgage Should Count as Debt

Your home is a liability – If you live in it, a home is a constant sinkhole for your money.  Utilities, repairs, upgrades, insurance, interest, etc. all rob you of cash flow.  More importantly, the money you put towards your down-payment and that you’re paying every month on your mortgage is money that could have been put towards more profitable investments.

You can live somewhere else – It’s hard to think of renting as a preferable option to owning a home.  After all, renting is just throwing money away.  At least with a home, you’re building equity.  That’s the most common explanation for why renting is crazy.  The truth is, owning a home is much more expensive than people assume it is.  Consider the following costs that occur with a home you own vs. a property you rent:

  • Taxes
  • Property insurance
  • Mortgage interest
  • Repairs
  • Upgrades (no one puts a new kitchen in their rental property)
  • External property maintenance

Justifying owning a home because “you have to live somewhere” is like justifying living on an ice-cream diet because “you have to eat.”

Not everyone has one – There are the rare few who make it a priority to pay off their homes much earlier than the average 48-year-old.  These people most definitely consider their mortgage as debt and are committed to paying that off as quickly as they could.  We’ll be taking a look at one such person in an upcoming post.

What Will You Choose?

If you could be completely debt-free and own your home outright, would that help you achieve the other goals in your life?  If so, are you willing to do what it takes to get there?

If you’re happy carrying your mortgage until you’re almost 50 (or past 50, remember 48 is just the average), then pay off your other debts, don’t borrow any more money, and make your mortgage payments for the next 20 years.

On the other hand, if you’ve really had enough of debt, if you’re tired of always OWING someone something, then don’t weaken your resolve and force your home loan into some special category where it doesn’t have to be paid off.

We’ll show you how: stay tuned.

Debt.ca

Admin


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