Warning, this may strike an emotional cord. If we have spoken lately about purchasing houses, you have probably heard me say that I think that a mortgage is a liability to the “owner” of the house. By liability, I mean something that costs you money. Many people say that their houses are assets, and I always challenge them to prove that their house makes them money. Usually, they fumble around or tell me about the tax benefits of “owning” a house. I then argue that they would rather pay the bank $10,000 annually in interest to avoid paying the government $2,500. Others say that they make money from the sale of their homes. This may be true, but some homes depreciate in the short-term. Will they really make any money?
The numbers tell the real story. The truth is that a house is an asset, but not for the owner. A mortgage is the bank’s asset, and it is designed to make the lender rich. For example, if one carries a 30-year loan to term, he’ll pay more than double the cost of the house. The myth that a house is an asset is misleading, causing many to try to get as much house as they can afford.
I’ll admit that I’m bias: I HATE debt. Still, there are worse things that one can do with his or her hard-earned money. Could I be wrong about this one? Why don’t you weigh in on the issue and tell me what you think.