Quote:
Originally Posted by Flames Fan, Ph.D.
1. It's debt. No one can claim otherwise.
2. Whether it is good debt or bad debt depends, like all investments, on the moment in time when you made the investment (median home price at the time, interest rate, quality of neighbourhood at time of purchase versus in the future). For a long time, thanks to steadily increasing house prices, people forgot that a mortgage is a levered investment that carries risk. Now it's evident that there is no free lunch.
3. I agree with Phanuthier that it is does look like someone is talking their book. If the mortgage was this great, pure-as-the-driven-snow debt that ranked above school debt and all others, then there would not be all these mechanisms of gambling on prevailing interest rates through your mortgage. Everyone would be satisfied with their golden investment.
4. I would argue that, as with most debt, people take on mortgage debt at levels higher than what is economically advantageous to them. I'm fortunate enough to make a great salary that places me in the top 15% of earners in the US... but if you looked at house prices, you'd think I was barely in the middle of the pack. The distortion isn't because I'm cheap (really i'm not!), but because homes remain historically expensive. Part of that is the emotional security brought by home ownership, and part of it due to the historical assumption that it is a "safe" investment.
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1)
Is a mortgage debt?
What if the investment is owned by a corporation?
I own shares of the corporation. The corporation owns mortgaged properties. The assets in the corporation exceed the "debt". Therefore, the shares I own have positive value, and I personally have no debt.
Don't really see why it's different if the corporation isn't there. As long as you have positive equity, it's not debt, good or bad, in my opinion.
2) If you don't own then you have to rent. That factors into the decision as well. Also, people own houses for potentially many decades. It's not the value now or even 10 years down the road which is important, it's the value in 30 years. With stocks, the company you exist in can disappear. As long as I retain my job and can keep making the mortgage paymetns, my house will not disappear.
3) Just because you can benefit from future interest rates, does not mean the equity in your home doesn't have value. The comparison between school debt and a mortgage is not apt. School debt is unsecured. A mortgage is secured against a piece of property. As long as you are above water, you can still sell the property for money. I cannot sell my degree for money. That's the big difference.
4) See 2. Everyone needs a place to live.
In fact, I'd take this all a bit further. As long as you have more assets than debts, you are not in debt. Obviously some of your investments and debts carry risks with them that could land you "in debt". A mortgaged property, as opposed to most stocks, has the potential to go underwater. Yes, that is a risk.