We all know inherently that debt is bad but I do understand that it is a necessary evil to have from time to time. For example, most people are not going to pay cash for let’s say, their first or even second house…so they get a mortgage. But just because you have a mortgage does not mean it is a good thing.
You hear all this talk about “good debt” and a lot of people put mortgages into that category. Well frankly, I feel quite differently about mortgages because their so-called “benefits” have really evolved unfavorably as tax laws have changed amongst other things.
As stated in a Forbes article from January 2020, “Once upon a time, a mortgage was a ticket to prosperity. Someone who bought a suburban home in the 1960s on a 30-year mortgage enjoyed a bounteous growth in the home’s value while repaying the debt with inflated dollars. The mortgage interest and property taxes were tax-deductible. The gain in value was mostly tax-exempt. It was a big win. Today’s buyer will enjoy no such fortune. Inflation is down. Tax rules are different. Debt of all kinds, including mortgage debt, is for losers.” (link to full article)
Today’s world is simply just not the world from 30 years ago. For one thing, mortgage interest is no longer tax deductible in most cases for middle class people.
I’ll take it one step further and ask you if you have ever really looked at the amortization schedule you signed off on when you secured your mortgage. Why is it that on a 5%, 30 year fixed mortgage for $300,000, I will pay $279,767 in interest over the life of the loan and $300,000 in principal? $279,767 sure does not look like 5% of $300,000 to me! Imagine the earning power and what you could do with that $279K had you not given it to the lender.
If you are asking me, paying off a mortgage is a good thing. And paying off a mortgage the right way is a GREAT thing. I’d love to sit down and chat with you about what the right way is so I’ll be here when you are ready.
Until next time,