Monday, September 10, 2007

Mortgage Debt -- Good or Bad?

Do you borrow as much money against your home as possible or make the largest down payment you can? Do you pay over 30 years or condense into 15?

The answer to those questions depends largely on who you ask. Due, in large part, to the number of people who are in debt up to their eyeballs these days, there’s no shortage of financial gurus who encourage people to shun debt of any kind, including mortgage debt. This can be a fine option, but tying up all of your cash in your primary residence also limits your ability to make other investments.

People who have grown businesses from the ground up understand the principle of leveraging. No matter how much new business owners make, (if they’re smart) they’ll be stretching all of that money to acquire more money-making business assets. What that means if you’re the spouse of said business owner is that you’re doing very well financially, but this is not the year you’ll finally be seeing Europe. Sorry.

Then again, most start-up companies fail. And, understandably, most people think of their homes as a place to keep safe from financial risk as opposed to a tool for achieving financial goals. But home equity, while certainly not a bad thing to have, has a zero rate of return.

What becomes important in terms of accumulating wealth is what you do with the money you didn’t use for a down payment (or the money you withdrew from that equity line of credit). More often than not, that money can be invested with a return that is greater than the cost of the debt against your house. But if you’re spending it all at the mall, obviously you won't be better off in the long run.

Having no debt can be liberating and free up cash flow for other investments, but it doesn’t give you a better return on your investment. So really, if you’re taking a disciplined approach, either way can work out well for you in the end, but you can build wealth more quickly if you leverage the equity in your home.

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Search Engine Marketing said...

Mortgage dept is good but it risky. If you confident your business then go head.
But my concern,properly inquire about its risk factor.At last decision is your.

Birmingham SEO said...

When your financial situation is right, pull some equity out of your home to make some green improvements.

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