To Have a Mortgage—Or Not To Have a Mortgage?

A lot of people are hesitant to enter into any debt. While this is generally a good attitude, there are certain loans that may be a good idea for your financial future, says Ric Edelman of Edelman Financial Services, and one of those loans is a mortgage. There are eleven reasons that a mortgage is a good idea:

Reason #1

Your home’s value won’t be affected by a mortgage. Its value may well rise or fall, but that will happen independently of whether or not there’s a mortgage on the property. Remember that if you tie up all your equity in your home it’s not earning you any interest: it’s simply increasing (or even decreasing) with your home’s value. The money can be better spent elsewhere.

Reason #2

Your mortgage won’t stop you from building equity in your house. It’s going to keep building whether or not you have a mortgage on it. And even if your house only goes up by around three percent, you’ll be making steady money in its equity, and that works even if you’re not paying off the principal.

Reason #3

A mortgage, says Edelman, is “cheap money.” It’s the best loan you’ll ever borrow. Think about the interest rates on your credit cards, or on your vehicle loan. The reason credit cards charge a high interest rate is because credit-card debt is risky for the lender, as there’s no collateral attached. Your home is your collateral for a mortgage loan, so lenders can afford lower interest rates.

Reasons #4 & #5

These are important considerations that a lot of people don’t think
about. The interest on your mortgage loan is both tax-deductible and

tax-favorable. When you borrow up to a million dollars, your interest is tax deductible and it’s taken at your top tax bracket… so every dollar that you pay is saving you money in federal taxes. Who doesn’t want that?

Reason #6

Over time, your mortgage payments get easier. This is a stunning reason to take out a mortgage. Let’s say that you have a 30-year fixed-rate mortgage. Your payments will stay the same, but chances are good that your overall financial situation will improve. You’ll have salary increases, and you’ll have income from investments. All that makes those monthly payments easier!

Reason #7

You can always do what Edelman calls “sell without selling” by refinancing your home with a new and more advantageous mortgage loan.

Reason #8

Mortgages allow you to invest more money and to invest it more quickly.

Reason #9

You’ll create more wealth with a mortgage than you would with other investments. Taking out a mortgage allows you to keep more of your assets liquid so that you can invest them in higher-return opportunities.

Reason #10

Mortgages will give you greater liquidity and flexibility with your funds. If you take the money that you would be putting into your home upfront, you can invest that money into something more short-term, so that you have some agility in your funds. Edelman says that it’s important to control access to your money. Carrying a significant long mortgage is a smarter approach and a safer approach.

Reason #11

No matter what, you’ll always have a monthly payment. You’ll still continue to pay taxes and insurance, so it’s never going away. You might as well take control and decide when, where, and how much you want to pay.

The bottom line is always this: control. Maintaining control of your finances is how to have financial health and independence.