Your home mortgage debt is not an asset

Just in case there was any doubt, your home mortgage is very much 100% a liability and not an asset. Here are some ways to get rid of it …

There's a place for spin, and then there's a place for silliness.  A Forbes.com article on MSN (no longer available *sniff*) gives six reasons that should encourage you to love your mortgage.  Some may argue that the Forbes.com take on mortgages is a glass-is-half-full position, but I don't even think it passes that sniff test.  It's certainly far from the subtitle's claim of “. . . how to stop looking at your mortgage as your largest liability and turn it into a valuable asset.”

Six reasons that a home mortgage is not an asset

Here are the six reasons they offer, with my comments.  I encourage you to read the article just to keep me honest.

1. Cut your taxes. This makes reference to the mortgage interest deduction, which allows the interest on up to $1.1 million of mortgage debt to be deducted.  This deduction goes up with your tax bracket.  But this deduction is only a fraction of the mortgage interest expense at best: 33 cents on the dollar or less.  That, and this can go away at any time.
2. Blunt the alternative minimum tax. The argument presented is based on the fact that, while many deductions go away when the alternative minimum tax kicks in, the mortgage interest deduction does not.  All well and good, but this is not an excuse to get a larger mortgage (which the article actually recommends!)  Again, it's a tax deduction, not a one-for-one return of your interest.
3. Pay early. Ok, they snuck a good one in.  Considering a mortgage refinance of your existing mortgage, especially if you can take on some of the interest rate risks in exchange for a lower rate and a higher payment by going from a 30-year to a 15-year mortgage can substantially reduce the interest you pay.  I may be nitpicking, but that seems to be a way to love getting rid of your mortgage, right?
4. Opt for an adjustable rate. Some adjustable-rate mortgages are so low that even at the cap rate it's not a disaster.  The rate does go down because the interest rate risk is placed squarely on the borrower, rather than the lender.  The article suggests that this is preferable to have an adjustable-rate mortgage if you're expecting to leave the house before the rate starts to reset, and it could well be.  The trick, though, is selling the house.  Will it be a seller's market in five years?  Who knows, but there are an awful lot of foreclosures and bank-owned properties to unload between now and then, and many of these aren't on the market yet.  If house prices have fallen at the time you want to sell, you may be out of pocket quite a bit if you sell.
5. Profit from your equity. The advice in this item is twofold: (a) borrow money against the equity in your house such that you can take the tax deduction, (b) and use the money to invest in something that should give a higher rate of return.  So, for the third time 🙂 borrowing money to get a fraction of it back in a tax deduction isn't really that wise.  And borrowing to invest, even in dividend stocks, is pretty risky — far riskier than the article suggests, in my opinion.  It reminds me of the insurance arbitrage scheme that has been around for a number of years — and is still being peddled, unfortunately — which involves borrowing money to purchase life insurance.  There are a time and a place for leverage, but this isn't it.
6. Protect your downside. The article did end on one which does make some sense.  Mortgage loans (in general) are non-callable, and non-recourse, which means that the lender cannot force you to pay the entire balance of the loan (call the mortgage) or go after your other stuff if you default (exercise recourse).  So, you are indeed entitled to pay off the mortgage as slowly as the note allows (until you're old and gray) which at least offers the security of 180 (or 360) equal monthly payments if you have a fixed-rate mortgage.

A mortgage is a liability, through and through

All in all, in no appreciable way, is a mortgage an asset.  The only slightly appreciable way that it might be kind of an asset is if you view it as a way to stick it to the bank for lending you 30-year money at around 4.5%, given that inflation will erode the purchasing power of that constant-dollar payment for as long as inflation is happening.  But then again, deflation happens too.  Ask anyone who lost their home during the Great Depression.  (Will that happen within the next 30 years?  I have no idea.)

But otherwise, a mortgage is, and always will be, a liability, a debt — especially when it used to purchase a consumer good like a primary residence.  Please view it as such, and try to get rid of it.