Is a Home Loan really a "Good" Debt?
Well, that's certainly what banks and mortgage companies want you to believe.
After all, they profit greatly from spreading the belief that borrowing money to purchase a home is "good" debt. They even have a lot of so-called "financial experts" on board, helping them to spread that belief.
One reason financial experts give as to why a mortgage is a type of "good" debt, is because if for some reason you can no longer afford to make the payments you can pay the loan off simply by giving the home back to the mortgage company.
I can't help but wonder what those same financial experts are telling clients who are now upside down in their mortgages (market value of home dropped to well below what they owe on the home) and have lost their jobs.
Borrowing is ... Living Beyond Your Means
The truth is, no matter how you slice it, borrowing money to purchase something that doesn't generate a payment-offsetting income is an act of living beyond your means (spending more than you earn).
And what does "living beyond your means" mean? It means two things:
- You become a slave to a lending institution.
- You will have to work twice as many hours to buy the same basket of goods as someone who pays cash for everything they buy.
Borrowing is ... Painting Yourself Into a Corner
When you take on financial obligations, you simultaneously reduce your freedom of choice. And the more you reduce your freedom of choice, the more you end up trapped where you're at -- trapped in your vocation, trapped in your present job, trapped where you live, trapped at home instead of vacationing abroad, trapped, trapped, trapped.
Borrowing is ... Working Twice as Hard for the Same Result
The second negative consequence of taking on financial obligations (borrowing earnings from your future to live better today) is that you will have to pay back more money than you borrowed (principal PLUS interest).
And the higher the interest rate and longer the repayment term, the more money you will spend to purchase the otherwise fixed-price item.
If you buy a $250,000 home using a 30-year, 6% mortgage, by the time you make the final payment, you will have paid $540,000 for the $250,000 home.
How on earth could that be a "good" thing?
Especially when you consider how many hours of your life you will need to spend working (loss of freedom) to pay the extra $290,000 for the home.
The mortgage interest rates calculator on this page will attempt to show you how much of your future earnings (freedom) you will be giving up in the process of paying 2-3 times the price of a home.
If you want to live free in "the land of the free," then do the opposite of what lending institutions are telling you in their sales presentations, the opposite being; grow slow, pay as you go.