Do you consider your mortgage "debt"

[chemgear]

"It's totally not debt if you're not going to repay it before you die":

http://business.financialpost.com/20...ir-70s-survey/

Survey results suggest Canadians might have unrealistic expectations of when they’ll be mortgage-free.

The Royal Bank of Canada poll, released Thursday, showed 72% of respondents with a mortgage expect to have it fully paid off by the time they are 65. However, it also found that 33% of those 55 or older still have at least 16 years left on their mortgages.

Among those between 18 and 34, 12% thought they would be mortgage-free by the age of 35 and 26% by the time they are 45.

[Teh_Bandwagoner]

I'm paying interest, so it is debt.

Edit: Also the poll is lopsided because it's being asked on CP. If the income poll suggested anything, is that most of us are probably fiscally responsible professionals. It just seems like the general tone of the forum is that many of us tend to live within our means as well. So in turn, mortgage is a debt because it's something we all want to pay off, whereas there are probably those out there who consider their mortgage (or any other credit) as free money.

[THE SCUD]

Originally Posted by Teh_Bandwagoner

I'm paying interest, so it is debt.

Edit: Also the poll is lopsided because it's being asked on CP. If the income poll suggested anything, is that most of us are probably fiscally responsible professionals. It just seems like the general tone of the forum is that many of us tend to live within our means as well. So in turn, mortgage is a debt because it's something we all want to pay off, whereas there are probably those out there who consider their mortgage (or any other credit) as free money.

and they would be wrong. My suggestion is this: You are immediately excluded from being able to purchase a home or procreate if you believe in any way that a mortgage is not a debt. It still blows me out of the water that a guy who sells homes for a living posted this.

A mortgage is debt. It's debt used to acquire an asset, yes. And you can look at a "net asset' (value of the home less the mortgage value) to get the 'net asset value' of your home, however there is no getting away from the fact that your mortgage is debt.

[Teh_Bandwagoner]

Oh and I certainly don't disagree with you. But then you see what happened when the mortgage bubble burst in the US, and you see these shows like Til Debt Do us Part or Princess, and suddenly it seems like the "yes" vote on this poll wouldn't be so one-sided outside of CP.

[mrkajz44]

Originally Posted by fotze

I think the paying off debt vs investing thing that made me lean to the debt side, was that paying off debt has zero percent risk. 100% chance of what you are doing with that money is going to what you want. All investments have significant risk. I'm not sure if the average person knows the math either. If you plop $20k on your mortgage, every morgage payment from that point on, you are saving i.e $150 that goes to principle and not the interest.

Couple that and my RRSP's and safe investments never making me any money anyway, it made it a pretty easy decision.

Originally Posted by jonesy

you're such a chicken

I believe the term is risk adverse. Have to agree that paying off your mortgage is much safer than investing. As some have mentioned, paying down the principle in the mortgage also forces you to keep the money as equity as opposed to a 'savings' account that can be easily spent.

Additionally, I think alot of people overlook the interest savings from paying down a mortgage. All they see is a fairly fixed payment every month. What is not considered is the fact that as the mortgage is paid down, the interest decreases. I'm not saying a reasonable person doesn't know this fact, but I believe it is very easily overlooked in a budgeting process.

[Sliver]

Originally Posted by THE SCUD

and they would be wrong. My suggestion is this: You are immediately excluded from being able to purchase a home or procreate if you believe in any way that a mortgage is not a debt. It still blows me out of the water that a guy who sells homes for a living posted this.

A mortgage is debt. It's debt used to acquire an asset, yes. And you can look at a "net asset' (value of the home less the mortgage value) to get the 'net asset value' of your home, however there is no getting away from the fact that your mortgage is debt.

The fact that 46 people agreed with him is even more shocking.

[Travis Munroe]

I read a great article on how to save 25k on your mortgage over 25 years.
Paying every 2 weeks vs monthly cuts a 25 year mortgage to just under 23 years which turned out to be roughly 25k savings on a a 300k mortgage.

Scud, you have made your opinions of me very clear throughout this entire thread for the public to read. Perhaps if you have more shots to take you can send me a PM. Ill get to it after im done assisting those on cp who do appreciate my service.
This thread was created after a thread stated that a high percentage of Canadians figured they would be debt free by a young age. This article either meant A a high percentage of Canadians believed a mortgage was not debt or they did not plan on taking out a mortgage.
Some mortgages put people in a positive cash flow situation with their investments, some write off a good chunk of their mortgage.
For the record I know a mortgage is debt and not a single person on this board would dis agree. The 20 or so percent that said no feel that their mortgage is on such a different scale of "debt" that they do not consider themselves to be in debt through day to day activities.

[blankall]

Originally Posted by seattleflamer

Mortgage is by definition a liability and therefore a debt. In my view, it is a question whether you have an asset on the other side of the ledger to balance or exceed that liability to define it as either "good" or "bad" debt.

If you are considering mortgage a debt, because by definition it is, then you must consider that you own the entirety of the house. By definition the house is in your name and you own it in it's entirety.

So either way you look at it, as long as you are not underwater you have more assets than debts. The house and mortgage as a whole is a net positive asset.

[GP_Matt]

I have always felt that the biweekly payment plan was just a marketing gimmick. The savings from paying biweekly is about $3000 savings over 25 years which for me is not enough to base a decision on. The real savings ($37560.03 in my example)come from the bi-weekly accelerated. But the savings are because they calculate your payments based on 24 a year and then add two. In my example you spend an extra $1744.82 a year but are done your mortgage after 21.4 years instead of 25. That is no longer a 25 year mortgage then, it is a 21.4 year mortgage.

Banks always push it as if it is some accounting trick that will save you money when it is nothing more than increasing your payments to pay off the loan quicker. Why not just sign a 20 year mortgage.

I ran the numbers on a $300 000 loan at 5% interest over 25 years and below is the total interest payment over 25 years and term. At lower interest rates the numbers are closer together and the spread increases as interest goes up.
Monthly - $223,443.02
Bi-weekly - $220,571.04
Bi-weekly Accelerates - $185,882.99

/end rant

[bubbsy]

i think in this day and age, it's almost impossible for everyone in the middle and upper middle classes to have mortgage debt well into their 40s or 50s.

That being said, in my opinion, there's good debt, then there's bad debt.

I'd consider student loans, and "smart" mortage debt (ie. not a debt outside of what you can afford), as examples of positive debt, and things like car loans (depreciating asset) debt, and credit card debt the problem areas.

[squiggs96]

Originally Posted by bubbsy

i think in this day and age, it's almost impossible for everyone in the middle and upper middle classes to have mortgage debt well into their 40s or 50s.

That being said, in my opinion, there's good debt, then there's bad debt.

I'd consider student loans, and "smart" mortage debt (ie. not a debt outside of what you can afford), as examples of positive debt, and things like car loans (depreciating asset) debt, and credit card debt the problem areas.

Why would it be almost impossible? Are you saying that everyone in the middle and upper classes would have their mortgages paid off by the time they turn 39? Do you mean "to not have"?

If your statement was correct, I don't understand.

[THE SCUD]

Originally Posted by GP_Matt

I have always felt that the biweekly payment plan was just a marketing gimmick. The savings from paying biweekly is about $3000 savings over 25 years which for me is not enough to base a decision on. The real savings ($37560.03 in my example)come from the bi-weekly accelerated. But the savings are because they calculate your payments based on 24 a year and then add two. In my example you spend an extra $1744.82 a year but are done your mortgage after 21.4 years instead of 25. That is no longer a 25 year mortgage then, it is a 21.4 year mortgage.

Banks always push it as if it is some accounting trick that will save you money when it is nothing more than increasing your payments to pay off the loan quicker. Why not just sign a 20 year mortgage.

I ran the numbers on a $300 000 loan at 5% interest over 25 years and below is the total interest payment over 25 years and term. At lower interest rates the numbers are closer together and the spread increases as interest goes up.
Monthly - $223,443.02
Bi-weekly - $220,571.04
Bi-weekly Accelerates - $185,882.99

/end rant

You sir, have tapped into what "the 99%" don't get - Well done. There is no free lunch: All these accelerated payment plans do is reduce the time period of your mortgage. So an accelerated bi-weekly, as you mentioned, simply increases your payments per year to mimic the same cash out the door as if you'd signed a ~21 year mortgage. You didn't save money or reduce the interest, you just reduced the amortization period of your mortgage.

What most people don't take advantage of is the fact that 90+% of mortgages allow you to make 2x the payment every month and a 10% lump sum payment every year. What's great about this is any amount you make over the normal payment goes straight to the principal, so you'll do a lot of damage to the interest over the life of the mortgage by doing that!

This gives you the flexibility to put, say, your bonus towards the principal every year, giving you huge bang for your buck.

[GP_Matt]

I agree with you but have found that in my own situation the optimal mortgage length is 15 years. I don't really like lump sum payments but my mortgage has flexibility to bump my mortgage payment by up to double. I like to bump the payment up by $50 every few months and maybe a bit more if I get a raise. I don't notice the difference monthly but at the end of the month the bank estimates the new length of my mortgage and you can see it go down. The returns of this strategy diminish though and I have found a psychological barrier at about 15 years. Once I increased my payments enough to knock 10 years off my mortgage I found that the payment increase required to knock off the next year is more than I was willing to spend.

I think everyone with a mortgage should spend 5 minutes with an online mortgage calculator to figure out how much they would have to increase their payments to knock off the final year of their mortgage. The last year is pretty easy to eliminate.

[bubbsy]

Originally Posted by squiggs96

Why would it be almost impossible? Are you saying that everyone in the middle and upper classes would have their mortgages paid off by the time they turn 39? Do you mean "to not have"?

If your statement was correct, I don't understand.

oops typo on my part., I mean i think it is common place to expect people to have mortgage debt until they are in their 40s/50s.


i mean i think if you look at a very high level average, with people establishing themselves (after graduating, and getting a meaningful job/income) you're looking at buying your first home/property around the 25-30 year age.

Assuming some level of upgrade as you start or have a family 5-10 years within that, and assuming a 25 year term, outside of unexpected lump sums of money falling in one's lap (or substancial increases in income not offset by the cost of kids, etc) , you're paying that off into your 40s/50s.

i'm sure there's ways to offset this, but that seems like the way the system is built for the avg canadian.

[bubbsy]

Originally Posted by THE SCUD

You sir, have tapped into what "the 99%" don't get - Well done. There is no free lunch: All these accelerated payment plans do is reduce the time period of your mortgage. So an accelerated bi-weekly, as you mentioned, simply increases your payments per year to mimic the same cash out the door as if you'd signed a ~21 year mortgage. You didn't save money or reduce the interest, you just reduced the amortization period of your mortgage.

What most people don't take advantage of is the fact that 90+% of mortgages allow you to make 2x the payment every month and a 10% lump sum payment every year. What's great about this is any amount you make over the normal payment goes straight to the principal, so you'll do a lot of damage to the interest over the life of the mortgage by doing that!

This gives you the flexibility to put, say, your bonus towards the principal every year, giving you huge bang for your buck.

argh, i really wish i knew more about this crap. I really need to research mortage handling much much deeper.

on another note, I don't understand why our education system lacks the ability to provide the youth with any level of sound financial planning .

[GP_Matt]

Bubbsy, I think the key to understanding how a mortgage works (aside from the actual terms of the mortgage) is to know that you pay the most interest on the last dollar you repay. To figure out how much a rough way is to use the equation $ = 1.0X^Y where X is your interest rate, Y is your mortgage length and $ is the amount of interest you pay on the last dollar you pay back. ie. a 25 year mortgage at 5% would be $3.39 (another way to calculate this is to multiply 1.05 by itself 25 times). That means that the last dollar you pay pack cost you $3.39 in interest where as the first dollar you pay back will cost you roughly 4/10 of a penny in interest.
To over simplify things (instead of thinking of one $300000 loan think of it as 300000 $1 loans). The first dollar you pay back comes with the 4/10 of a penny interest charges and the last dollar paid back has $3.39 worth of interest charges. By making only your regular monthly payments you are paying back the cheapest loans first. Anything you pay above the scheduled amount goes on the back end pays off the most expensive loan first.

[Cecil Terwilliger]

Originally Posted by THE SCUD

You sir, have tapped into what "the 99%" don't get - Well done. There is no free lunch: All these accelerated payment plans do is reduce the time period of your mortgage. So an accelerated bi-weekly, as you mentioned, simply increases your payments per year to mimic the same cash out the door as if you'd signed a ~21 year mortgage. You didn't save money or reduce the interest, you just reduced the amortization period of your mortgage.

What most people don't take advantage of is the fact that 90+% of mortgages allow you to make 2x the payment every month and a 10% lump sum payment every year. What's great about this is any amount you make over the normal payment goes straight to the principal, so you'll do a lot of damage to the interest over the life of the mortgage by doing that!

This gives you the flexibility to put, say, your bonus towards the principal every year, giving you huge bang for your buck.

These are the same thing. All you are doing with accelerated payments is paying more than you are contractually obligated.

Every extra dollar above your contractual amount goes to the principle. Pay more principle, pay less interest, get loan paid off faster.

Some institutions will allow you to pay down as much as 20% of your original mortgage per year. For a $300,000 house that is $60,000 of the principle you could pay down. Most people don't have that kind of money but watch the difference in the split of you int vs principle if you did that. It is amazing how much you can save.


You can also increase your payments by a similar amount (about 20%). Over time you you can dramatically increase your payments because you can typically keep increasing on top of your previous years increase. Although the amount you can increase by is typically always calculated based on your contractual amount.

Obviously these only work if you can afford to do so. At the end of the day the smaller the balance the less interest, the more principle paid the less interest will be accumulated.

I always roll my eyes when I see people with like $200k in unregistered GICs earning 2% and then they have a mortgage for $100k at 4% and a mortgage LOC at about prime for another $150k and they refuse to pay off their debt because they like having investments. Unless you're earning significantly more from your investments you should pay off your debt.

At the end of the day you could pay off your LOC and pay down your mortgage and actually make more than your investment based on the amount of money you save from not paying interest.


The problem is that FI's don't want you to do this. Then they lose a credit product and they lose an investment. They would rather you invest and borrow heavily. Then they get to pad their numbers on both ends, instead of ending up with nothing.

[username]

I personally see nothing wrong with a 30 year mortgage. While a 2000 - 3000 monthy payment on a mortage right now might seem a little steep it will be peanuts to the person who qualified for it now in 30 years. If you just assume an increase of 3% to your salary (conservative I'd say) every year for 20 years by the time you're at 20 years it will basically feel like you're living mortgage free.

edit: I forgot to mention that the time value of money comes into play here too. If you're going to pay off your mortgage in 15 years, that dollar of interest at year 15 is worth a lot more today than your dollar at year 30. So while you're paying more interest on a 30 year mortgage, the interst you're paying later isn't worth the same as it is early on.

[chemgear]

Originally Posted by fotze

I remember being in High school when they introduced that CALM course. Do they still have that?

Oh man, that was the BEST class ever. We had a former Miss Canada contestant who was just starting her teaching career for that class. It was completely useless as a class - but man, we all looked forward to that course.

[Slava]

Originally Posted by chemgear

Oh man, that was the BEST class ever. We had a former Miss Canada contestant who was just starting her teaching career for that class. It was completely useless as a class - but man, we all looked forward to that course.

Its all coming together now! When I talk to people (about money) they all say "they should really teach this stuff in school" or similar things. I often take that time to remind them that they do. Its called CALM and while a lot of people are busy skipping class or generally screwing around some of us actually took something away from it! In my class we picked out houses and actually figured out what the down-payment would be and how long it would take us to save that kind of cash up. Pretty eye opening for me as a 15 year old to realise that as a 27 year old for me to own the place I would want would take me roughly that long to afford a down-payment, if I started saving right away!

My CALM class talked about RRSPs, compound interest, budgeting and even things like proper resumes, applying for work and interview skills. I went to a public school here in Calgary, and if people took away half of what was taught they would have a reasonable idea of how these things worked. The problem to me is that people mistake "I took a class on that" for "I can apply what I learned". Those are two totally different things, and I'm sure that we've all seen that in our professions as well as places like this.