Do you class Mortgages & Student Loans as debt?

Dithering_Dad

beanielou wrote: »

I dont include my mortgage as debt.
If I don't have my mortgage then I would have to rent & most likely pay a similar amount.
Most people have to have a loan for a car or home improvements and thats ok in my book as long as its budgeted for & affordable

As debts go, mortgages are one of the better ones, allowing you to "rent" a house from the bank with a small proportion of the rent money going to buying the property outright.

But whether affordable or not, it's still a debt that needs to be serviced on a monthly basis. I'm with Roswell's "debt free" definition that once you keep all your paypacket (apart from paying for services such as electricity, etc.) then you can class yourself as debt free. I'm also thinking that Roswell's right about my quest to pay off my mortgage - once it's down to a comfortable amount, the temptation to use the overpayment money elsewhere will probably be overwhelming - unless interest rates go through the roof that is.

medman

That makes sense except.......if you rented you would be debt free now, by your definition, but you would have to pay rent for the rest of your life....a bit like a bad debt!!

Manageability is key and I think you indicate that with your attitude towards overpayment. The important thing is that you are comfortable with what you owe and can afford the payments. As the debt reduces it seems less threatening. The same happens as income increases. They are two sides of the same equation.

Anyway good luck, I'm off back to the garden for a cold beer and you need to get your course work completed.

Cheers :beer:

MM

Forreal

I'm hapy to live with the debt that is my mortgage and to that end consider myslef without debt but look forward to the day when it is paid off and I am truly 'debt free'.

Broken_hearted

My mortgage isn't counted as debt as to rent the house I live in would cost three times what I pay in mortgage.

Lara44

I don't have a mortgage (yet?) but I do have a student loan which I class as debt. I am going to pay it off £100 per month and also save everything I can in my ISAs so that I have a pot of cash I can pay the debt off with or else buy a house or something.

But I wanted to say to Broken Hearted that the house I rent would cost me three times as much in mortgage - prices are really strange at the minute aren't they?

Mindy_2

I follow the general consensus that a mortgage isn't counted towards our debt.

Although saying that, once we get the debts cleared, then its onto overpaying the mortgage.

MarkyMarkD

Very interesting debate. It comes back to the idea that rent is "wasted money" which is, frankly, untrue. The element of rent that is in excess of your mortgage interest is, arguably, wasted money. But if your rent is cheaper than the interest on a mortgage on a comparable property, then arguably renting is wasted money.

The only thing that negates all that is the (rather important thing of) capital gain on the property. That's how situations like Lara's make sense, or at least begin to.

If you can buy a property and get a 2% rental yield, say, meaning that a mortgage would cost about 3 times the rent, then that's still worthwhile if you believe the property value is going to increase by (say) 10% pa - your total return is 12% less costs which is likely to amply cover the mortgage.

Whilst there was a happy period during which landlords could buy houses in many areas and get their mortgage interest fully covered by the rent, that was a rather abnormal time and if everything was in equilibrium, landlords would only make money on a total return basis. That will doubtless push a lot of the amateur BTL landlords out of the market as many of them don't want to put ANY money into the property at all (and, indeed, can't even afford to do so on a long-term basis). But then again, some of them will keep remortgaging, releasing equity, and manage to keep the band-wagon rolling.

I have personally only had debt for asset purchases (houses or cars) and those debts haven't worried me a great deal. Nor would I have said that I was "in debt" even though at times my net assets have been negative (due to negative equity on property) and I suppose in fact I was.

So, I think my version of being debt-free would be having net assets rather than net liabilities, and by "assets" I mean readily saleable assets such as cash(!), savings, investments, property and vehicles.

seven-day-weekend

I didn't consider myself debt-free untill I had no mortgage, no loans, no overdraft and no ongoing credit card payments, even though I had loads of equity in my property.

Occasionally now I use my credit card (and pay it off when the statemant comes) but other than that I use CASH!

ZTD

Mortgages are debt. However, unlike secured loans for cars and hp for 3 piece suites, they aren't consumer debt - you don't "consume" houses.

Perhaps that's all that's needed - a distinction between CDFW and TDFW?

tomterm8

The thing is people don't work out the actual cost of owning a home, compared to renting.

In essence, when you are buying a home, your investment is the cost of the house, the cost of the interest, the cost of maintaining the house plus the oportunity cost of not investing your deposit money in an investment with higher returns than house prices.

Since on average, house prices rise more slowly than stock prices, the actual return on your deposit will likely be far lower than if you invested the money in the stock market.

From here it's all to do with leveraged investment. You don't supply the majority of the investment; your bank does. If the bank rates are lower than the rise in property prices, you've made money. You've probably made more money than you would have done if you had invested the deposit on the stock market.

If the bank rates go higher than the rise in house prices, you're losing money. Very fast, since history shows bank rates can go very high (15%) while house prices can fall very fast (10%) at the same time. Thats the thing with leveraged investments... you're investing with other peoples money. If it goes right, you make a lot of money. If it goes wrong, you're in negative equity.