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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 308557  
Subject: Re: Why is Mortgage Debt "Different" Date: 3/6/2014 1:33 PM
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vkg,

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
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