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does debt-free mean mortgage-free?

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I’m not especially a debt-free obsessive. Although I don’t have any credit card debt, I took out a low interest student loan and am paying it off as slowly as possible. On a somewhat related note, I have no plans to try and pay off my mortgage quickly. In my mind, decisions about these two debts are treated pretty much the same. In neither case is it productive (for me) to pay them off quickly because they are relatively cheap. However, I want to know what the debt-free and debt-free wannabees think (as well as everyone else).

Does being debt-free mean being mortgage-free?

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42 comments for “does debt-free mean mortgage-free?”

  1. Technically yes, I think. But I know a lot of people don’t mean it that way, so I’d probably ask them to clarify about mortgages. I don’t think there’s anything wrong, per se, with having a mortgage (if it’s one you can afford, for a house you can afford).

    Putting money into the mortgage has the advantage of building equity in the house, which I think is cool. Debt that will become equity and is secured is better, IMO, than debt which just accumulates interest and gets you nothing except being debt-free. That’s the kind I want to get rid of.

    Posted by Mrs. Micah | October 10, 2007, 3:02 pm
  2. Personally I think a mortgage is a debt like any other. Of course it’s not as bad as credit card debt, but it’s still debt. I don’t understand how people can say they are debt-free when they still have a mortgage. Hello? It’s a debt, it’s money you owe and you are paying interest on. (I understand that apparently mortgage interest is tax deductible in the States, but still…) And you never know, maybe the value of your house/condo will go way down for some reason.

    Posted by Monica | October 10, 2007, 5:59 pm
  3. @Monica:
    You’re right about the house value going down. I’m a little afraid that might happen to my house right now. Still, I’ve got no plans to sell up so hopefully it’ll be ok.

    Posted by plonkee | October 10, 2007, 8:36 pm
  4. In my mind, owing any money to anyone = a debt. Yes, one could argue that there is “good debt” (e.g. mortgages) and “bad debt” (e.g. credit card debt) but it’s debt all the same. Not thinking of your mortgage as a debt is just rationalising. Just try not paying your mortgage for a few months and see if the bank thinks it’s “not debt.” ;-)

    Posted by brad | October 10, 2007, 8:45 pm
  5. I agree with Brad. It’s “good debt” but there’s no way you can get around calling it debt. What we need is a new term for it. There’s “bad debt” (credit cards, car loans, etc.) and there’s “good debt” (student loans, mortgages, etc.).

    Ideally I would like to be able to pay cash for my house, just like I prefer to pay cash for everything else. I don’t want to be indebted to Citibank Mortgage any more than I want to be indebted to Citibank Credit Card. The simple fact is that the existence of mortgages and the availability of large amounts of credit from banks to buy homes has driven up home prices. It’s a vicious circle, fueled by the fact that banks don’t mind lending money as much when they have as collateral a huge, valuable and immovable asset.

    It’s a good question, though. I wonder if there’s ever going to be a point again, though, where people will be able to afford even the smallest homes without either getting a mortgage or waiting until they’ve saved up enough cash at age 50 to buy one.

    Posted by Brip Blap | October 10, 2007, 9:24 pm
  6. I think a mortgage is definitely part of your “debt” although I think there is something to be said for being “unsecured debt free” where the unsecured debt is not balanced by an asset ie a house or stocks bought on leverage.

    Mike - Debt free (except for a huge mortgage)

    Posted by FourPillars | October 10, 2007, 10:14 pm
  7. In fact the psychology of debt and how we view it in our minds can have an important effect on our behaviour. I hate being in debt, so I took out a rather short-term mortgage (15 years) and am paying it off on an accelerated schedule, plus I’m saving as much as I can to pay off large chunks of the principal once a year (my goal is to pay off the mortgage in 10 years or less). It’s irrational because I would almost certainly be better off financially if I invested the money in an index fund instead of throwing it at the mortgage to reduce my debt, but I have such an aversion to debt and such a desire to be free of it that I do it anyway.

    In contrast I have a good friend who simply views interest as the cost of buying money. If he doesn’t have enough money to buy something he wants, he goes out and buys some money from the bank; the interest he pays is the cost of buying that money. So he isn’t bothered by debt at all, nor by the interest he pays on it.

    Posted by brad | October 11, 2007, 12:56 am
  8. I think the key here is that if all you have is a mortgage, then you have no consumer debt, which is usually considered bad. Technically yes, a mortgage is debt, but a mortgage can be considered an expense in the sense that renting is an expense.

    Who is better off (assuming both people have identical investment portfolios, income levels, and no consumer debt)? Person A who has $100,000 in home equity and a mortgage payment of $1000/mo, or person B who has zero equity and a rent payment of $1000/mo?

    Person B has no debt, but most people would say Person A is better off because he has home equity. (I’m obviously not including the home equity in the investment portfolio).

    In the end, I think it comes down to personal preference on how you define your debt and how you handle it.

    Posted by Patrick | October 11, 2007, 1:53 am
  9. A lot of good discussion. For me, I would consider myself debt free even if I have a mortgage. Because it’s a good debt (generally) that gives you leverage.

    Posted by Pinyo | October 11, 2007, 3:29 am
  10. I would say debt-free could include a mortgage…but only an 80% mortgage. I think the second mortgage, HELOC, PMI, etc. counts as serious debt.

    Posted by SavingDiva | October 11, 2007, 3:21 pm
  11. …but I would still try to pay down my mortgage as quickly as possible…if I had one…still working toward that goal…

    Posted by SavingDiva | October 11, 2007, 3:21 pm
  12. Good or bad, bond or debenture, credit card or mortgage, all debt is debt. Being debt free - while it may sound great - is not really the issue. The important thing is what we are doing with the debt (and that we are able to service it).

    In my opinion, a mortgage for your personal residence is of marginal value. Yes, you need a place to live anyway and yes real estate tends to appreciate. However, consider what your return on the investment is. You may see a higher return by renting and investing the balance of what you would be spending on your house.

    Posted by the Wealthy Canadian | October 11, 2007, 5:28 pm
  13. You’ve made me think now…

    On a visceral level, I don’t think I do consider them to be the same thing. Unless you’re lucky enough to be left a house/flat by a relative, you have to pay to live *somewhere* so you might as well pay a mortgage and get to own it eventually.

    Consumer debt is what I think of as debt.

    Of course, in an ideal world I wouldn’t have any outgoings except my monthly consumables… then I’d have all that money to save and spend on myself!


    Posted by Annie | October 11, 2007, 8:07 pm
  14. I’ve never bought the “you have to pay to live somewhere so you’re better off paying a mortgage than rent” argument, because really how many people buy a house that’s exactly as large or exactly as nice as the apartment they were living in? Maybe 20 people in history? ;-)

    In reality people usually buy a bigger house or in a better neighbourhood than where they were renting, they want a step up. Me, for example, I went from paying $550/month for a cramped 2.5-bedroom apartment in a poor section of town to paying $2,400/month for a 3-bedroom house with a basement, porch, and a bit of lawn. When I was paying $550/month I was able to save money hand over fist, and if I’d stayed there and invested that money instead of spending it on a house I’d almost certainly end up ahead financially in 20 years, especially since my house was priced a bit high for my neighbourhood and is probably not going to grow substantially in value. But I did it anyway for emotional reasons, some things go beyond money.

    Posted by brad | October 12, 2007, 11:13 am
  15. @brad:
    Ugh thats a really good point. My last rent payment was 75% of my current mortgage payment and I moved from a 1 bed flat to a 2 bed terraced house. On the other hand, the price of a similar flat would be more like 80% of the price of the house. And its my dream house (apart from location).

    Posted by plonkee | October 12, 2007, 1:30 pm
  16. I don’t consider a mortgage debt. Technically, yes it is debt because you owe someone and are paying interest. But most people live in a home or apartment, and they’re paying either their own or someone else’s mortgage.

    I went from a small 2 bedroom apartment for $990, to a 3 bedroom house for $1050. I was looking at apartments for $1350 before I bought the house. For me, it’s hard to justify renting, and I couldn’t afford a house without a mortgage. I have to live somewhere, so I may as well be building equity.

    Posted by Eric | October 13, 2007, 1:46 pm
  17. Of course a mortgage is a debt. I am on a journey to become debt free. We should be debt free (except for the home mortgage) in 2009. It will be several more years until we are truly debt free (and have the mortgage paid off). :)

    Posted by Jennifer | October 16, 2007, 1:31 am
  18. A mortgage is debt. To say otherwise is to twist the meaning of debt. A mortgage literally means “a pledge unto death.”

    In my opinion, no debt qualifies as being good debt. People seem to believe home mortgages are “good” debt because of a belief that “home prices always go up.”

    I believe we will see home prices drop over the next 5-10 years. In some cases, they will drop fast. Will everybody still be chanting the “mortgage is good debt” mantra? I doubt it.

    Posted by Ryan Healy | October 19, 2007, 6:46 pm
  19. A mortgage is debt. Does that mean you shouldn’t get one? Heck no. Does that mean you need to carefully weigh the implications of what your getting yourself into? Indeed it does.

    As I see it, the chief advantage of buying a house is that you can eventually pay it off. There’s something nice about owning a place and knowing that it’s yours. Not having to pay for housing (aside from taxes) also makes tough financial times a little less scary.

    Posted by E.C. | October 22, 2007, 2:23 am
  20. of course a morgage is a debt, any money owed is a debt! I have often been puzzled at people who say they are debt free yet they have a mortage.
    Wether people choose pay if off or not is a personal decision but it’s still a debt.

    Posted by Louise | November 4, 2007, 7:07 pm
  21. I don’t think so. Until you retire, having a mortgage can be a good way to leverage yourself. I have built a nice real estate portfolio with mortgages.

    Posted by dave | January 31, 2008, 12:07 am
  22. If you carry any debt, you’re paying too much for the merchandise or service. The rich, as a matter of fact, pay off their debts as quickly as possible. Does that tell you something? The longer you diddle around paying off a loan, the more money it’s costing you and less money you have available for other investments, period. You’re wasting your money. Loan acceleration is the way Americans will manage their loans after the dust settles from this financial debacle. Hope this helps.

    Posted by William Homolka, CFO | February 28, 2009, 3:39 am
  23. I subscribe to the notion that debt, whether “good” or “bad” is debt. Either you pay a mortgage payment or you pay rent…it’s still debt. And don’t get carried away about the interest deduction on a mortgage. If you’re in a 28% tax bracket and paying $10,000 in interest, you get a $2,800 deduction. The other $7,200, or $600/mo. is out of pocket.

    Posted by Bill | February 28, 2010, 12:04 pm
  24. Yes the mortage is a debt,but Putting money into the mortgage has the advantage of building equity in the house, which I think is cool a cool idea to do.

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