I really don’t like to be in debt.
I refuse to use credit cards unless I can pay them off in full at the end of the month. And I haven’t taken out a car loan for almost 20 years, preferring instead to drive my car into the ground before paying cash for a new one.
Despite my aversion to borrowing, however, I have a fairly large mortgage. And I don’t mind owing money on my house. Here are three big reasons why this is the case.
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1. Homeownership helps build wealth
Most of the time, when you borrow money, you end up using it for services or for assets that won’t hold their value.
If you take out a vacation loan, for example, you will enjoy your trip but have nothing to show apart from fond memories. And even if you take out a car loan, you are borrowing to buy something that will be worth much less than what you paid by the time you were done using it.
A home loan is different. When you borrow to buy a house, you will end up owning that house for free and you can continue to live in it without paying for the house. This makes it a very valuable asset. You also have the option of selling it in the future if you wish, and hopefully you will walk away with more than what you paid for.
For this reason, a home loan helps you improve your equity and build your wealth over time. It’s worth borrowing for a better finish.
2. My mortgage interest rate is very low
Many types of debt have high interest rates. In fact, most types of loans and credit cards can have rates of up to 10%. The higher the interest rate, the more expensive your purchase becomes and the more money you put in the pockets of your creditors instead of keeping it for yourself.
Mortgage rates, on the other hand, tend to be very low, especially in recent months. Since the rate on my loan is less than 3.00%, the interest charges are only slightly higher than the rate of inflation. And the interest rate is much lower than the potential return I could earn by investing my money in the stock market, even in very safe investments.
Because I pay hardly any interest, I would rather borrow for my house than pay cash as there is little reason to tie up so much money when I could invest it elsewhere and earn a better ROI ( KING) .
3. The interest on my mortgage is tax deductible
The interest I actually pay on my mortgage turns out to be even cheaper than the 3.00% rate suggests.
This is because I detail my taxes, which means the interest is tax deductible. Since I can claim the interest I pay and reduce my taxable income, the government subsidizes a portion of the homeownership costs. Being able to take advantage of this tax break makes my mortgage even cheaper.
Since my loan costs me so little and helps me take full ownership of an asset that will ultimately leave me with higher equity, it should be easy to see why I don’t mind having a mortgage.