I went for a walk today and starting thinking about mortgage debt. I know, pretty lame.
But that’s what apparently goes through my head when I make a conscious effort to put my phone down and exercise.
Anyway, I began thinking about how I really don’t like debt. I don’t know if it’s psychological or what.
Even if it’s 0% APR debt that isn’t accruing interest, I’m simply not a fan. I am not one of those people who would take out massive loans to launch a project.
Or feel comfortable with tons of debt in general, even if investing elsewhere, perhaps for a better return.
However, the one exception is a mortgage. For whatever reason, I don’t mind holding onto one (or several).
A Housing Payment Feels Standard
For one, I feel like having a housing payment is just part of life. So it’s not strange to pay a mortgage each month. It could even feel strange not to have one as an adult.
If I wasn’t paying a mortgage, I’d likely be paying rent someplace else, every month in perpetuity.
So in that regard, it doesn’t feel like it’s an extra burden. It’s really just par for the course.
To make this easier to swallow, mortgage rates were ultra-cheap the past decade or so.
I hold very inexpensive mortgage debt today, especially relative to prevailing rates on home loans today.
We’re talking 3% rates when the 30-year fixed today is closer to 6.5%. Even if the 30-year fixed were lower, having debt at 2-3% interest rates seems like a pretty solid deal.
When you compare it to a credit card, which may have a 30% APR, what’s not to like about a 3% interest rate?
This is one of the reasons mortgages are referred to as good debt. They’re generally the cheapest option to borrow money in town.
They also come with fixed-rate payments for long periods of time and are typically tied to an appreciating asset.
My Mortgages Allow Me to Diversify and Deploy Funds Elsewhere
Another reason I don’t mind holding a mortgage is because it allows me to allocate money elsewhere and diversify.
They always say to diversify, no matter what it is. Stocks, income, work, friends! Family you’re stuck with.
With a big old mortgage and a small monthly payment, more money can be deployed to other areas, whether it’s an investment account, 401k, savings account, 529, or even toward another property.
If I paid cash for my home, which let’s be honest wasn’t doable anyway, or went nuts trying to pay off my mortgage early, I’d potentially be cash poor.
I’d also be in a situation where I held an illiquid asset with a good amount of risk exposure. Remember, homes can go down in value. They can also get damaged or destroyed.
Sometimes having a loan can be a blessing if it reduces your exposure to losses. It also means less of your money is tied up.
At the end of the day, it’s harder to tap equity than it is sell a stock, or transfer money from a savings account.
And you don’t want to be in a position where you need cash but it’s all stuck in your property.
I Still Plan to Pay Off My Mortgages by Retirement
While I don’t mind having mortgages for now, I do plan to pay them off. And hopefully before retirement.
They say it’s a good idea to pay off your mortgages before you retire, assuming you’ll be on a fixed income.
And in general, it’s not the best plan to just carry debt forever and ever. For me, 30 years is plenty long to hold a mortgage.
So that’s the plan. To pay off my home loans before I stop working. But I’m also in no big rush, given how cheap the mortgages are.
In addition, mortgage payments get cheaper with inflation. Remember, a dollar will be worth a lot less in 10 years than it is today.
If my monthly payment is $2,000 a month, it’ll feel like (and actually be) a lot less in the year 2034. And even cheaper in the year 2044.
So what’s the rush? Meanwhile, I can let my investments grow passively and ideally beat the interest expense on the mortgages with ease.
After all, the S&P 500 has delivered a return on investment of 503.42%, or 7.64% per year, since the year 2000.
If we factor in inflation, the adjusted return is still a whopping 230.35% cumulatively, or 5.02% per year.
I’d rather put money there each month AND hold my home loans to term, as opposed to allocating everything toward the mortgage.
At the end of the day, I suppose knowing home values rise over time (and investments do too) make me OK with carrying large amounts of debt. But only if it’s a mortgage.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
