My parents will tell you, I was full in on the 100% down payment plan. I was going to live in their basement for years and mooch off them until I had enough for a home. I'm glad I didn't go that route and I'm sure they are too. I was against all debt, period. It didn't matter what kind of debt it was, I was against it. However, my opinion has changed about debt, but not drastically.
Let's just say, I'm okay with mortgage debt. The only other debt I'm considering changing my stance on is debt to obtain appreciating assets. I haven't clarified my view on that yet, but I've been thinking a lot about it. That's for another post though. Now, we're focusing on mortgage debt. The only debt I'm okay with and here's why...
Your mortgage debt is backed by an appreciating asset, i.e. your home. So, if you can't pay your mortgage, you just sell your home and you'll likely make a profit. Because of this, your risk is lowered and if you set up your emergency fund correctly, you could even go a few months paying the mortgage bill without a job.
This is only half of it though. Another reason I'm okay with mortgage debt is something I explained quickly in a previous post. I look at a mortgage payment in two parts: the rent and the investment. The investment is the easiest to understand, it's simply the principle paid each month. Then, everything left over is the rent (e.g. taxes, insurance, and interest). I call this rent because it's the cost of acquiring a residency.
For example, my mortgage is roughly $3170 a month. I'm currently on a 30 year, but switching to a 15. This is how it breaks down monthly (average over first few months):
Looking at it this way, I now ask myself, would a $2651 apartment be better for me and my wife? I'd then invest the $519 a month, which would actually get better returns than if it was invested into a home. After all things considered, renting wasn't the right decision for us, but now you can see how a mortgage is split into two parts: the investment and the rent.
You'll find that a lot of people who are totally against debt (think Dave Ramsey) are okay with a mortgage. It's because you're going to be paying rent one way or another, but a cool thing you can do with mortgages is lower your rent. The best way to do this is either make additional payments, or switch to a 15 year mortgage (or something even lower). This will also increase the amount of money invested each month.
If you don't fully understand how to look at a mortgage in two parts, please message me! I really want to help you understand, because it will improve your personal finances.
One of my goals with this blog is to give me an avenue to helping people with their finances. That's why every post I encourage you to ask me a question! I hope you enjoyed reading Better Budget and it has helped improve your personal finance journey.
Better Budget Co
Your guide to all things personal finance. We're big fans of goal getting budgets, debt fee living, and a good cappuccino.
My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
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