Canadians naive about how long they’ll be in debt

[corporatejay]

Originally Posted by Phanuthier

If your house inflated that much... and you think you're sitting on a $1,000,000 asset (with $200k liability)... you should probably sell your house ASAP.

Maybe it hasn't inflated, maybe you've, i don't know, actually paid down your mortgage over the last 20 years.

[Phanuthier]

Originally Posted by corporatejay

Maybe it hasn't inflated, maybe you've, i don't know, actually paid down your mortgage over the last 20 years.

Never mind, I thought you meant some sort of massive inflation of real estate. If real estate inflates significantly higher than the inflation of currency, you're gonna want to get out, ASAP.

[ernie]

Originally Posted by Realtor 1

IMO a mortgage is not really debt because chances are it is not losing value.

Thanks for the chuckle! I needed it.

[blankall]

A mortgage is not debt unless you are underwater. It just means you have less equity in the home.

If the house is worth 1 million and the oustanding mortgage is 500k, you still own 500k in assets. In what possible way is that to be considered a debt?

[Phanuthier]

Originally Posted by blankall

A mortgage is not debt unless you are underwater. It just means you have less equity in the home.

If the house is worth 1 million and the oustanding mortgage is 500k, you still own 500k in assets. In what possible way is that to be considered a debt?

How about by definition?
http://www.investorwords.com/1313/debt.html

If the house at $1M depreciates to $0.8M, you think you and the bank split the difference and you own $400k and the bank owns $400k?

[Superfraggle]

Originally Posted by blankall

A mortgage is not debt unless you are underwater. It just means you have less equity in the home.

If the house is worth 1 million and the oustanding mortgage is 500k, you still own 500k in assets. In what possible way is that to be considered a debt?

In the way that you still owe $500,000. Just because you could pay off the debt if you sold the house doesn't mean the debt doesn't exist. The house is only worth $1 million when someone buys it from you. Until then, it doesn't help with the debt.

[Tinordi]

Quick question, if I take a $500,000 loan and invest it all in the stock market is that not considered debt either?

[Phanuthier]

Originally Posted by Tinordi

Quick question, if I take a $500,000 loan and invest it all in the stock market is that not considered debt either?

Not if your stock goes up to $1M.

[bizaro86]

Originally Posted by Phanuthier

If the house at $1M depreciates to $0.8M, you think you and the bank split the difference and you own $400k and the bank owns $400k?

Obviously not on a regular mortgage, but they have some schemes like that in the UK, where you buy half a place, and rent the other half interest. Then you have an option to buy the rest of it at the current market value. If you choose to sell, you only get half the proceeds.

http://www.rightmove.co.uk/first-tim...ownership.html

PS Yes, a mortgage is definitely debt. It might be good debt, but it's definitely debt.

[Tinordi]

Debt is debt. The fact that no one seems to have learned some very recent lessons on the risk of investing in the housing market is frankly quite scary. Look down south and see what's going on there house prices are STILL falling.

[Phanuthier]

Originally Posted by Tinordi

Debt is debt. The fact that no one seems to have learned some very recent lessons on the risk of investing in the housing market is frankly quite scary. Look down south and see what's going on there house prices are STILL falling.

Which is why a realtor, of all people, saying that, is quite... comical/ironic/funny/scary/etc.

[Tinordi]

Waiting for the usual "It's different here..." post.

[opendoor]

The blanket term "in debt" is kind of silly. Someone who bought an overinflated house with 5% down or a person with a bunch of credit card debt is put in the same class as an investor who uses financial leverage for the tax benefits or a person with 2% owing on their house.

Is a 55 year old who who rents a basement suite and has no assets but isn't "in debt" really in a better situation than a 55 year old with $1 million in net worth who happens to have a 0% car loan?

[edn88]

I am 42 and I expect to be in debt for about 20 more years (mortgage).

I don't feel like I am in debt (assets >> liabilities) so I guess the definition of in-debt needs to be defined to be clear on this.

[Tinordi]

Here's a good article on why it's good to be skeptical of big aggregate debt numbers.

http://worthwhile.typepad.com/worthw...ebt-again.html

[Sylvanfan]

Well I think there is some truth to the younger you are the more likely you are to think you'll be debt free faster. When I was 25 I was debt free. Now that I'm married with a kid, and ruined by the recession. I think I'll be in debt till the day I get to take my dirt nap.

Than again, isn't that the objective...why die with money in the bank, BORING!!!

Either way I plan to continue giving fear mongers a reason to warn Canadians about our terrible spending habits, and that we shouldn't buy anything except stocks, and even than make sure we can stuff that much money in a mattress as collateral in case the stock goes down in value.

[Bring_Back_Shantz]

Is all debt necessarily bad?

I wouldn't think so.
A decent mortgage (not a 40 year 0% down mortgage), I wouldn't classify as bad debt. Things like student loans I wouldn't classify as bad debt either becaue the value that they bring is much higher than their cost (note: does not apply to art majors).

What is a problem is consumer debt. Things like credit cards, car loans etc.

I would say that if the debt is being aquired because there is some tangible future benefit to it (greater career earnings) or it's attached to an asset that has a greater value than the debt, then it isn't bad debt.

What is bad debt is things that are bought for instant gratification or depreciating assets, clothes, vacations, cars etc.

So yeah, I'd say the guy with the $1 MM home, and a $500k mortgage, is much closer to "debt free" than someone who only has $20k in credit card debt that was spent on clothes and a vacation.

[yads]

People who are saying mortgage is not debt in this thread is so mind boggling. If your liabilities exceed your assets it's time to declare bankruptcy. Just because you're solvent, does not mean you don't have debt. Valuations of any non cash asset can change from day to day.

I heard a great analogy of what someone is doing when they get a mortgage. You are simply renting money.

[Slava]

Originally Posted by yads

People who are saying mortgage is not debt in this thread is so mind boggling. If your liabilities exceed your assets it's time to declare bankruptcy. Just because you're solvent, does not mean you don't have debt. Valuations of any non cash asset can change from day to day.

I heard a great analogy of what someone is doing when they get a mortgage. You are simply renting money.

Just out of curiosity then do you think that people should just save up until they can buy a home in cash? I get what you're saying about the solvency point, but at the same time borrowing is the one way that most people can afford to own a home. You can't usually borrow money for free (especially hundreds of thousands of dollars), so your options are limited.

[JD]

A mortgage is certainly debt, but should "debt-free" be the goal?

As touched on by a couple of posts, if your net worth (ie, assets > liabilities) is positive, you have simply made a choice in where your equity lies. If you have chosen to maintain a debt such as a mortgage where that capital is better utilized elsewhere than paying the principle, what is the problem?

For instance, if you're paying 2.5% interest on the mortgage but can make 8 to 10% investing the money somewhere else, you're better off.

I would say "debt-free" is not necessarily what Canadians should be trying to achieve. But it's not a bad place to start if you're not in a position of having a positive net worth.