Four Reasons Mortgages Are Good Debt
4 min. read
By: FCU Team
Debt is the single greatest threat to your retirement planning, college savings, and financial independence, but there is a special case where it can actually be used to your benefit.
A mortgage is a type of debt that bends most of the rules. Mortgages can be a reasonable and realistic financial tool to build your wealth.
Here are four reasons why mortgages may actually be good for you:
1. Locking in Today’s Pricing
With mortgages, there are two main types of loans you can get: a fixed-rate and an adjustable-rate. While adjustable-rate mortgages can vary over time, a fixed-rate loan locks in the current interest rates. This means that if you get a loan with a life of 30 years, you keep the price constant against what could be potentially rising costs. If rates in the future become lower than what you were already paying, you’ll always have the option to refinance.
2. Owning Is Better Than Renting
Some people are intimidated by the large price tag of a house. But owning your home is often more affordable than renting in the long-term. Buying a house typically involves a down payment larger than a renter’s deposit. However, monthly mortgage payments are not unlike paying rent and can be actually be more cost-effective. Rent costs rise over time while you can lock in your mortgage payment.
Not to mention, a home is an investment and typically appreciates over time. This means that when you decide to sell, you will be free from debt and you will make money by making a profit on your home’s equity.
3. Paying Down A Mortgage Creates Equity
Home equity is the value of your home, subtracted by how much you owe. Say you own a home valued at $280,000, and you still owe $205,000 on your mortgage. Your home’s equity, then, would be equal to $75,000. Your home also earns equity by appreciating in value. The equity you have accrued can be tapped into to use for expenses like home renovation projects, a down payment, or a wedding.
Two ways you can take advantage of this value is through a Home Equity Loan or a Home Equity Line of Credit. A loan is a one-time lump sum payment that you pay back monthly. A line of credit, on the other hand, lets you borrow up to the approved amount and pay it back as you use it. Like with your credit card’s limit, your credit revolves as you pay back the debt.
4. It’s the American Dream
Home ownership is the key to having a happy and balanced life. Many people see it as the path to financial independence, important to having a family, and simply a good purchase. It’s something that many people take pride in, that their home is theirs. And chances are that, even if you’re financial situation isn’t the greatest, it’s achievable.
The bottom line is that mortgages are great for your financial profile. Homes typically appreciate—increase in value—with time. As an investment, home buying is more steady compared to the stock market, which can be volatile. It can also be more affordable than renting in the long-term, especially with fixed-rate loans where your monthly payments remain the same well into the future.
And unlike with renting, the money you spend on your monthly payments you can make back once you decide to sell.
With certain high-interest loans or with investments that lose value over time, your home can bean affordable investment that fits well into a typical budget and provides stability for the future.
Considering buying a home?
Take a look at our website’s Mortgage page to learn more about what type of products are available at Florida Credit Union, or give us a call at 1-800-284-1144. Our mortgage team is here to help and would be more than happy to assist in getting you into your dream home.