UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next
Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 310321  
Subject: Re: Why is Mortgage Debt "Different" Date: 3/6/2014 1:33 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 3

You wrote, Unlike credit card debt, a mortgage is used to buy a hopefully appreciating asset and it provides housing (imputed rent) in the process.

And while this is the usual rational for calling a mortgage a "good" debt, it's an over-simplification. What you're purchasing has little to do with the value of the debt you're assuming. It is true you are saving yourself rent, but the buying of an appreciating asset is the same whether it is land, a stock, a mutual fund or art.

Whether or not going into debt for the purchase of such items is a good idea depends on the costs and risks associated with the debt. A mortgage puts the roof over your head on the line against your ability to repay - that's a pretty big risk. But its usually more than offset by generous terms - very low rate and long repayment period.

Its these generous terms that usually make taking a mortgage on a purchase worthwhile. Otherwise you might be better off renting ... or paying cash, if you have it.

In fact there are other frictional costs associated with purchasing real estate that make it impractical (or "good debt") for some people that can't afford to be tied to one location for long by owning a property. For those people, a mortgage probably wouldn't be practical even if it were a 0% APR.

I know we've discussed this topic on this board many times before, but I figure it bears repeating for any newbies that might be reading the thread...

- Joel
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next


TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
Foolanthropy 2015!
Fistula Foundation: A World of Good!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Berkshire Hathaway

Collected Mungofitch Quotes
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.