What if a mortgage was not a debt? July 24, 2008
Posted by BDO in Budgeting Concepts, Organizational.Tags: beat, beating, bible, bill, Debt, investment, loan, mortgage, real estate, reduce
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“Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.” – Romans 13:8
By definition, mortgage is debt. However, can it be viewed as a bill? Is it similar to a grocery bill, water bill, or day care bill?
Realizing that the median household income (before taxes) in America is $43,000 a year and the average house costs $214,000 (July 2008), how does that balance? How could the average American afford a $214,000 house? The only way is through a mortgage loan. Furthermore, looking at the Federal Reserve’s chart book, we see that even at the highest percentile category, the median income is still only about $145,000 a year, which will not buy the $214,000 house.
What happened to the price of a house? Do we remember a time in the 1800s when everyone had a house? Everyone got together to build the “Little House on the Prairie.” It might take a long time and might not be the trendiest house on the block, but everyone had a house.
According to today’s numbers, no one can have a house…unless they commit to 30 years of payments. Through the ease of loans and small payments, the market inflated the price of a home. There is no one to really blame because in our open market, buyers and sellers agreed to raise the price of the home to its current valuation.
I am a realist, and this simply is what it is. But what does a person fighting to beat debt do with this 30 year loan hanging over their heads? Can we reclassify this loan as a bill, even if it is a bill we will have for the next 30 years? What other choices do we have based on the Federal Reserves numbers? Can we rent so we don’t incur more debt? The answer is yes, we can rent, but isn’t that really a bill for living under someone else’s roof?
The way I see it, we can rent or have a mortgage. Either way, we are paying a bill to live under a roof for the next 30 years. Just like we have bills for electricity, taxes, and water, we have a housing expense.
By classifying our mortgage as bill, we create a couple issues. If we classify a mortgage loan as a bill, what happens to the investment aspect of the real estate? If we classify a mortgage loan as a bill, do we need to try to pay down the “bill” as soon as possible?
The only reason I want us to classify this loan as a bill is so we can earn our freedom. Looking at the numbers the Federal Reserve provided, it will take 30 years to earn the title of “Debt Free.” Who has the patience for that?
By realizing this situation, we re-classify the mortgage as a bill and then we can emphasize getting out of debt with more realistic goals like our credit cards, car loans, and education loans. These loans are not usually as large as a mortgage and can be reduced in a shorter period. In addition, mortgages do have investment and tax incentives that are not inherit in most other loans, so there are more advantages to paying off other loans first. Paying off all other debts first will help us experience the freedom away from debt and to choose our own destiny.
Use this knowledge to challenge yourself to beat debt, to live frugally, and to evaluate your family income in relation to how much house you really need.
Discussion Questions:
- How much is your mortgage loan? How many more years will you be in that loan?
- If you classified your mortgage as a bill, when will you now be “Debt Free”?
- Do you have too much stuff? What can we do to get rid of the stuff we have so we can live in a smaller valued house?
“Lock up your house, go across the railroad tracks, find somebody in need, and help that person. To overcome discouragement, don’t focus on yourself, get involved in the lives of other people.” – Karl Menninger
Photo by: GottShotts & DougWard
“Withhold not good from them to whom it is due, when it is in the power of Thine hand to do it.” Proverbs 3:27 KJV
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A Kid's Guide to Managing Money (Ready-Set-Grow Series)
Of all the debt average households have, I think a mortgage is the “least evil”, and I’d go as far as to say “it’s OK”.
However, I still think that, after you’ve managed to get out of all your other debt, and you are living debt free otherwise, you should make it a priority to pay off your mortgage as soon as possible.
Nate David Scott also had some good thoughts about buying a property here: http://natedavidscott.wordpress.com/2008/07/24/if-i-were-debt-free82/
Thanks for stopping by my blog! Currently, our mortgage is our biggest debt, and one that we aim to pay off before the 30 years (We’re actually pretty good at it – extra money goes towards paying things down — which is why we have no car payments, my student loans were paid off early, and when we can swing it, an extra payment or two goes towards the mortgage payment. It’s by far our biggest monthly expense, but we lucked out with our house. We live in a subdivision where a lot of the houses are often for sale, and the houses match one of four floor plans – all nice homes – so we bought the one being foreclosed on – which for that reason was $15K cheaper to buy than any other home in the neighborhood.
I agree with Francois that we should strive to pay off our mortgages as quickly as possible (if there is no other debt).
However, I do think that since it’s a necessity, it’s an acceptable debt. Personally, I’d much rather deal with living in my own house than renting. It’s just nice to know that with proper care and planning, I can turn a small (in this market) but tidy profit for taking care of something. Wish the same could be said about vehicles, computers, etc.!
WOW!, Excellent work, I’m really glad I found your blog. I just love your post. Keep up the good work. Cheers!
If you talk with people of the “rich dad poor dad” philosophy, a mortgage is a liability because it doesn’t bring in a stream of income. I agree with this…it is a liability and even when it’s paid off you will owe taxes and have to do maintenance on it.
However, if one can figure out how to have another stream of income and pay off the house, then that is when the house is an asset because you do not have payments.
Thanks for stopping by my blog and for your great comments on getting out of debt.
http://www.graceforgrace.com
This is an interesting topic. I agree that it’s a “necessary evil” to have a mortgage. It’s debt and as long as you have debt – you’re a slave to it. (sorry I don’t know the scripture reference for that) I would like to say one thing in reference to paying extra towards your mortgage. It’s important to have an emergency savings account. If you don’t – that’s where your money needs to go first, before paying down the mortgage.
#5
You’re right! It’s good to have at least 3 months of savings stored up before starting to get aggressive with paying off debt…
http://www.graceforgrace.com