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Mortgage Debt

Updated: Aug 23, 2021

In the world of personal finance, there is perhaps no more controversial topic than whether you should have a mortgage or not.

On the one hand, a house payment is almost always the largest part of a family’s monthly budget (or expenses, if there is no budget). It stands to reason that removing the principal and interest from the monthly expenses frees up money for investment.

On the other hand, owning real estate can be a great wealth generating tool. Waiting until you’ve saved up enough money to pay cash for an asset that is appreciating can be a losing battle – it just isn’t practical. Even paying your mortgage off by any means necessary isn’t the best move. Using leverage to buy a home means that as your home appreciates, your equity increases. This increased value does not go to the bank. It goes to your net worth. You loan balance with the bank does not increase, in fact, it goes down every time you make a payment. Over time, the difference between the value of your home and the loan balance increases. This is your equity, your wealth.

The math is pretty clear – you should invest your money elsewhere rather than paying your home off first then starting to invest. You’ve borrowed at around 3% and can make many times that by investing in more real estate or the stock market, for example.

The peace of mind can also be hard to argue with. Laying your head down every night knowing you own your home free and clear is a great feeling (or so I assume).

So, like so many things in life, there really is no right answer here. You’ve heard it before – personal finance is PERSONAL. If you are comfortable with the numbers and carrying debt so you can invest elsewhere, great! If you don’t like the idea that your home could be taken away from you if you stop making payments, fine! What is not fine? Buying so much house and being very comfortable with a high mortgage payment that does not allow you any wiggle room for investment.

You can probably tell from the way this is written that I am a believer that having a mortgage and using debt as a tool to grow wealth is the best choice for me. I’ll throw a slight wrench into that by sharing that we own 3 properties and only 2 have mortgages:

1) Duplex in St. Pete: purchased in 2019 for $170,000 ($20,000 invested since)

Value: $275,000

Mortgage: $0

$275,000 contribution to net worth

2) Quad Short-Term Rental in Tarpon Springs: purchased in 2020 for $285,000 ($170,000 invested since)

Value: $450,000

Mortgage: $335,000

$114,000 contribution to net worth

3) Duplex in Hudson: purchased in 2021 for $385,000 ($20,000 invested since)

Value: $415,000

Mortgage: $308,000

$107,000 contribution to net worth

You can tell from the numbers that we would not be able to own all 3 of these properties if we were focused on paying the first mortgage off. You can also see that we could theoretically sell the duplex in St. Pete and buy 2 more similar properties with that equity. As it stands, we are benefitting from the appreciation on 3 properties, but we could be benefitting from more. We are only benefitting from monthly loan pay down on 2 of them. I am of course not even taking the other benefits of real estate into account: cash flow and tax benefits. But personal finance is personal, and this is the path my husband and I have chosen for now.

How do you feel about having a mortgages?

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