Although it's not quite dinner conversation yet, talking about family finances with other people is getting to be less taboo. This is a good thing, because the forces at work that aim to part us from our money are more devious, stronger, and more numerous than they were fifty years ago.
A big part of family finances, of course, centers around debt: credit card debt, car loan debt, student loan debt, and the biggie: mortgage debt. Mortgages last a long time, and with the easy money policy that began about ten years ago which played a part in driving mortgage rates down to their lowest in over four decades, those mortgages were bigger than ever.
Mortgages are so commonplace that we think of them almost as a mainstay of our financial lives, a class of debt all in themselves. If we don't have any other debt, we say with a hint of pride: “We're debt-free … except for our mortgage.” (This is the position we're in.) Which isn't really debt-free, but we're at least hitting a triple and the ball's almost getting over the back wall, right? 😉
Debt on a primary residence is consumer debt
If our homes are “our biggest investment” then how come so much money goes out the door each month in support of this “investment”? At best, it's a durable consumer good with few problems. At worst, it's a nightmare of taxes, repairs, nosy neighbors, and bored kids who like hurling raw eggs all over the place. Probably, it's somewhere in between. But it costs, and costs, and then it costs some more. Unless the house happens to be a multi-family unit, and the rents from the other units pay above and beyond the principal, interest, taxes, insurance, and maintenance, the house isn't an investment. It's an expense, and a big one at that.
We continue to save up for that down payment so that we can “own our own home,” when it's against the odds that we ever will truly own it.
Would you sell your house and rent in order to be completely debt-free?
That's what Frank over at The Happy Rock has done. He sold his house, and now rents. He tells No Credit Needed with more than a little hint of pride: “We are 100% debt free.” Including the mortgage. They owe no one on this earth anything.
Frankly, this is a step that would be a very hard sell for a lot of people, including my family. On the face of it, it's humbling — possibly humiliating? — to go back to renting after owning, with or without debt. All of a sudden there are restrictions on what can be done in the living space. I know it would not be at all pleasant if we had to do this.
But that would be a problem with me, not a problem with renting. I floated the idea past my wife four years ago when we could have sold our previous house for more than we can today, and she would have gone along with renting for a while, but there would have been a deadline. Whether selling and renting would have worked out in our favor or not, we will never know, but the desire to stay in the house won. I didn't argue too much about it.
In the end, there are a number of ways to financial peace and happiness, and being completely debt-free, even if it means not owning a house, is certainly one of those ways, and I commend Frank for turning his back on “financial business as usual” to live this lifestyle.
What factors drive you to own a home (and a mortgage) or not? Are you where you want to be in this regard?
I don’t get it. Isn’t a lease a debt? Sure I could probably rent for approximately the same monthly payment as I’m expending now on my mortgage payment but why would I want to? It’s not a mental issue, it’s a number issue.
What factors drove me to rent, as opposed to buy? Let’s see: after “owning” (a loosely used term, where home residence is concerned) twice, I decided that: hundreds of man-hours devoted to painting, remodeling, removing mold, installing fireplaces, rebuilding chimneys, cutting down brush, raking leaves, moving huge piles of those leaves to curbsides, planting grass, watering grass, mowing grass, cleaning out gutters, hanging drywall, changing out electrical fixtures, etc., etc. – and then seeing zero returns on my time and investments – is an enormous waste of my time. Renting allows for: peaceful moments at the pool, or jacuzzi, or for a walk, or reading a book. Mortgage debt is a lousy way to not only enslave yourself, but suck up the limited time on this planet we’re all given. But no realtor will tell you these things, of course.
I’m not sure what I think about this one. If you have to pay rent every month is there a financial benefit? I guess you could walk away easier with no long term impact to your credit, but walk away to what? Presumably to the next monthly rent payment. You could free up personal time by eliminating maintenance. I’ll have to think about this more, though it will purely be a thought excercise because there is no way my wife would agree to selling our house and renting 🙂
There’s only a small effective difference between having a mortgage (renting from the bank) and renting (from a land lord). You can pretty much consider the interest part of your mortgage equal to rent. In both cases you pay someone to live where you do. Even if you actually own your home 100%, there are still real estate taxes.
Consequentially, there’s never any ultimate home ownership, only grades of home ownership. Thus there’s little difference between someone who rents and someone who has a house with a small percentage of equity.
In my opinion a primary residence is not an asset. An asset is something that can be used to produce income or can be converted to cash. The only way you can convert your house to cash without leaving it is by borrowing against it. When you do that you end up paying far more than the property is worth by the time you pay off the loan.
Even if the house is paid in full there are still costs and no money coming in from it.
For me and most people I’ve spoken to, the motivation to buy a house is not financial. They want the yard to garden in and for the kids to play in. They want to be free of landlord restrictions about pets and what they can/can’t do with their living space.
The prospect of future inflation drove me to buy, and to take a mortgage, even though I could choose to rent or to buy for cash.
I intend to pay off my 30-year fixed-rate mortgage as slowly as possible – i.e., no extra principal, etc.
I do not consider the house an investment, just a hedge against the impact of inflation on rent.
Repair costs, property taxes, etc., probably balance any appreciation. Although I do value the ability to make a tax-free gain if/when I sell.
However, owning SHOULD be more financially beneficial than renting if landlords are rational – but many are not. The owner of a single-family rent house SHOULD be making a profit. That means he SHOULD count the cost of his mortgage, the indirect cost of having money tied up in equity, property taxes (which are often higher for non-owner occupied), repair costs, etc. when he sets his rent.
But a lot of people seem to think that if the rent covers the mortgage, they are ahead. Rent from those people, because they don’t understand finance!
My husband and I became debt free in January, 2011 (paid off the 0% Sears credit card for our new AC unit); Our car was paid off a year ago, the house 5 years ago. We use credit cards (to get the rewards) but they are paid off in full every month. I love being debt free…so far it has been amazing.
Renting is better only if your rental fee is very low or if you only plan to stay in the house for a few years. In most cases, it’s better to own a home rather than to rent as you get to pay money towards owning your own property. However, as mortgage is a long-term and substantial amount of debt, your job stability and financial status should always be taken into consideration.
We rent right now, and I can’t wait to own a home. However, we plan to have at least a 20% down payment, if not more. We plan to move to an area of the country where this is possible. (It is not possible where we currently live unless we save for years and years.)