I went for a walk today and started thinking about my mortgage debt. I know that sounds silly.
But that’s what seems to be on my mind when I make a conscious effort to put my phone down and exercise.
Anyway, I started thinking about how much I hated debt. I don’t know if it was because of myself or what.
Even if the debt had a 0% annual interest rate and no interest accrued, I simply wasn’t a fan of it. I’m not one of those people who would borrow huge amounts of money to start a business.
Or you feel comfortable with having a lot of debt in general, even if you invest elsewhere, perhaps for a better return.
However, the only exception is mortgageFor whatever reason, I don’t mind keeping one (or several).
Housing payments seem to be standard.
First, I feel like paying a mortgage is just part of life. So it’s not weird to make a mortgage payment every month. In fact, it might feel weird not making a mortgage payment as an adult.
If I didn’t pay a mortgage, I would likely have to pay rent somewhere else, every month, forever.
So, in that respect, it doesn’t seem like an extra burden, it’s just part of the natural process.
To make this easier to digest, mortgage rates have been extremely cheap over the past decade or so.
Today I have very cheap mortgage debt, especially compared to the prevailing rates on home loans today.
We’re talking about 3% interest rates while today’s 30-year fixed rate is closer to 6.5%. Even if the 30-year fixed rate is lower, taking on debt at 2% to 3% interest rates seems like a pretty good deal.
When compared to a credit card, which might have a 30% APR, what’s not to like about a 3% interest rate?
This is one of the reasons why a mortgage is referred to as good debt. It is generally the cheapest option for borrowing money in the city.
They also come with fixed-rate payments for long periods of time and are usually tied to assets of increasing value.
My mortgage allows me to diversify my money and spread it elsewhere.
Another reason I don’t mind keeping the mortgage is that it allows me to allocate the money elsewhere and diversify it.
They always say to diversificationWhatever it is. Stocks, income, work, friends! The family you live with.
With a large old mortgage and a small monthly payment, more money can be directed to other areas, whether it’s an investment account, 401k, savings account, 529, or even toward another property.
If I paid cash for my house, which to be honest I couldn’t do anyway, or went crazy trying to pay off the mortgage early, I would likely become cash poor.
I may also be in a situation where I hold an illiquid asset with a high level of exposure to risk. Remember, homes can decline in value. They can also be damaged or destroyed.
Sometimes getting a loan can be a blessing if it reduces your exposure to losses. It also means your money will be less tied up.
Ultimately, investing in stocks is more difficult than selling stocks, or transferring money from a savings account.
You don’t want to be in a situation where you need cash but it’s all stuck in your possessions.
I still plan to pay off my mortgage by retirement.
Although I don’t mind paying my mortgage right now, I plan to pay it off. I hope to do so before I retire.
They say it’s a good idea to pay off your mortgage before you retire, assuming you’ll have a steady income.
In general, it is not better to carry debt forever. For me, 30 years is enough time to hold a mortgage.
That’s my plan. To pay off my home loans before I stop working. But I’m in no hurry either, since mortgage rates are so cheap.
In addition, mortgage payments become less expensive with inflation. Remember, the value of the dollar will be much lower in ten years compared to its current value.
If my monthly payment is $2,000, it will feel like (and actually be) a lot less in 2034. It will be cheaper in 2044.
So why all the rush? In the meantime, I can let my investments grow passively and, at best, easily outlive the mortgage interest costs.
After all, the S&P 500 has Delivered Return on investment of 503.42%, or 7.64% per year, since 2000.
If we take inflation into account, the adjusted return is still a massive 230.35% cumulative, or 5.02% per year.
I would rather put money there every month and hold my home loan until the end of the year, rather than putting it all towards paying off the mortgage.
Ultimately, I think knowing that homes appreciate in value over time (and investments do) makes me more than willing to take on large amounts of debt. But only if it’s a mortgage.
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