Eliminate Mortgage Debt as Quickly as Possible

by TTMK on December 6, 2012 · 13 comments

Is there such a thing as “good debt” and “bad debt”?

Perhaps.  I can see the latter being the domain of most consumer debt.  When people charge things up on credit cards, then get the bill and say “umm, I can’t pay this now but I’ll pay it later”  – that’s bad debt.  Unless there are extenuating circumstances, it’s just not sound judgement to take on such debt.  There is blame to be dished out, and it falls squarely on the consumer.

However, some debt is considered good.  Or, maybe better put, not as bad.  Student loans, if reasonable, can be good debt.  If excessive, and for an education consisting of an unemployable major or from an overpriced school, it can be bad debt.  This is another topic for another post, which will be a good time to get into that discussion.

In this case, one type of debt that seems to fall into the middle of good and bad is housing debt.  Now, most people realize that a mortgage isn’t good debt.  That being said, I have heard a few people – including one I had thought was otherwise quite sharp – actually try to argue that it’s okay to take on a bigger mortgage because you get a bigger tax deduction. HELLO! That makes no sense, and I don’t find that to be true!

Okay, so we can rationally agree that mortgage debt isn’t good.  But is it bad? This is where some folks – and I think perhaps most – think that it’s just a normal part of life.  In other words, it’s just what you do.  You grow up, get married, and get a house.  Or maybe you don’t get married but get one, or you buy a condo instead.  Or, perhaps you do what another blogger did and choose to live in a low cost of living country.  Whatever the case, taking on a mortgage and buying a home seem to go hand in hand, like a couple 🙂  And, almost like a rite of passage for many adults.

Does it have to be that way? Well, maybe it’s just realistic for folks who want to buy to take on a mortgage, the way our society is set up.  However, maybe it should be a matter of practice to genuinely viewing housing debt as being at least semi-bad – and that we should eliminate mortgage debt quickly .  The way to do this might be to get rid of the mindset that a 30-year mortgage is normal, and aim for a 10 to 15 year payoff period instead.

Think about two things:

1) Wouldn’t it be great to go through your monthly expenses, and know that NOTHING is being spent on a mortgage (or rent)?

2) Remember that there are tons of home-related expenses that you already have to pay anyway.  One of which is taxes, which won’t go away – and is an example of why you truly don’t ever really own your home free and clear. (Yes, you can have the mortgage paid but you don’t want to see how fast the home can be taken away if you never pay your taxes. Those don’t go a way when the mortgage is over!)

My Questions for You

When looking at debt on the dimensions of good or bad, how would you characterize mortgage debt?

Do you think most of us are too cavalier in how we consider mortgage debt to be so “normal”?

What are your thoughts on the notion that we don’t truly ever own our homes?

{ 13 comments… read them below or add one }

Leigh December 6, 2012 at 10:17 am

Once I eliminate my mortgage payment, my monthly housing costs will only be ~$600/month including property taxes, HOA dues, and utilities! That may sound expensive if you live somewhere else, but renting a similar two bedroom/two bathroom apartment would cost at least $2k/month.

I definitely think that we are too cavalier in how we consider mortgage debt to be so “normal”. Personally, I want to make sure that my mortgage is paid off before the rate resets in five years (I have a 5/1 ARM), but I will pay it off earlier than that if I can.

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TTMK December 6, 2012 at 7:47 pm

Leigh – that sure is a big difference, between renting and a paid off mortgage. Really, not having a mortgage payment sounds good, right?

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Emily @ evolvingPF December 6, 2012 at 12:15 pm

I think that mortgage debt in many cases is good/acceptable debt. It depends on the interest rate of course, but with rates right now nearly the same as inflation I wouldn’t be in any hurry to pay off a mortgage if I had one. Mortgage debt is collateralized, so you do own something tangible that you can trade to erase the debt (assuming the house is above-water) – unlike student loan debt or other types of consumer debt that has been used to buy things that steeply depreciate. I guess since I have never owned my home the idea of giving it up for whatever reason doesn’t bother me too much – renting is a good option in lots of life situations.

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TTMK December 6, 2012 at 7:49 pm

Emily – yes, the debt is different than consumer credit card debt, where the items bought can be sold for pennies on the dollar if you’re lucky. In this case, you can sell your home. So sure, I agree that it’s different in that regard. Where it’s the same is that it’s still debt – borrowing money to buy something we can’t actually afford.

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The College Investor December 7, 2012 at 12:23 am

I think that a mortgage is good debt as well, but it is still debt. The trouble I have paying it off so quickly is that my mortgage rate is so low – 3.5% and tax deductible, so I know that I can earn more in my investments than tying up my cash in the house. I view my mortgage as almost a free loan at this point.

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TTMK December 7, 2012 at 1:40 pm

College Investor – rates are remarkably low right now, from a historical perspective. Of course it’s still debt as you say 🙂

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Christopher @ This that and the MBA December 7, 2012 at 9:51 am

My father in law always tells me that a house owns you..when you think there is nothing to do something always breaks. I think mortgage is good debt when viewed in comparison to the other debt i have.

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TTMK December 7, 2012 at 1:42 pm

Christopher – that’s a wise saying, actually. The house owns you….I like that! The saying that is, not to be owned by a home 🙂

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Jason December 9, 2012 at 9:34 am

Mortgage debt can be good debt, as long as you manage your money correctly. If you use mortgage debt to lower your cost of living vs renting by buying a home you couldn’t afford without the mortgage, this can be a good debt. If you have enough money to buy the house outright, Mortgage debt can be good because it can give you leverage and reduced oppurtunity costs in return for higher risk.

Let’s compare two methods of buying a $200k house: 20% down, 30 yr 3.25% mortgage vs paid in cash. By putting 20% down ($40k), you still get appreciation on the full value of the house (this is leverage – $40k bought you say 2% appreciation on a $200k asset). If you take the remaining 80% ($160k) and invest it (say in a low cost index fund), you could earn a large return that you couldn’t had you bought the house in cash (oppurtunity cost – expectation in first year might be almost $12k, enough to pay the mortage). If the expected return of the investment + leveraged appreciation > mortgage interest rate, in return for taking on investment risk, you have an expected lower cost. This is before even including mortgage interest deductions.

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Hank December 9, 2012 at 4:18 pm

There’s no such thing as good debt…only less bad debt that is backed by an asset like your mortgage.

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Ted Jenkin @ Your Smart Money Moves December 11, 2012 at 7:45 am

I don’t think there is such a thing as good debt. If you have to take debt, current mortgages with low rates that offer you a current tax deduction is best kind of debt, but there is no such thing as good debt. Find me one person who gets excited to go to work every day just to pay the very obligations that hang over their head. We’ve built too much of a no money down society and this is part of our problem today. Pay it off as quickly as you can!

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TTMK December 11, 2012 at 8:27 pm

Ted – I know what you mean. Debt is like indentured servitude. Best to eradicate it.

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Michelle November 18, 2014 at 7:46 pm

After my student loans are paid, the mortgage is next on the list.

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