To Mortgage or Not to Mortgage?

When some people say they are debt free they mean they have absolutely no debt. Other people mean that they are consumer debt free and have paid off all debt except their house loan.

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Recently I had a reader ask me if she should purchase a home with a loan or if she should save up and pay for the home in cash. Surprisingly, I said, “It depends”. This may be confusing to some readers as I’m known to say things like, “Debt is slavery” and “Avoid debt like the plague.”

Here are some reasons you might actually want to take out a house loan instead of saving up for a house: (To be clear, when I say “take out a house loan”, I mean a short 15 year or less loan, with at least 20% down and a fixed interest rate on the cheapest house you can find. It would also be something that you are trying to pay off like crazy.)

  • You are older and so you might not have the time to save up enough to pay for a home outright, while still enjoying living in it.
  • You are currently living in a high cost area, but would be taking out a loan on a house in a very low cost area.
  • Your rent is MUCH higher than the house payment (with house insurance and maintenance) would be.
  • You currently have a big mortgage and are going to move to a much smaller mortgage. (Although, it might be even better to get rid of that big mortgage and just be debt free!)

For most people, I think saving up to buy your home outright is the way to go. There is just nothing like being completely debt free (including not having a mortgage).

I also think when you save up for a home and purchase it with cash, you are much less likely to overspend on a home. Home shopping means dealing with numbers in the tens and hundreds of thousands. Those numbers can lose meaning very quickly if you do not have a finite amount of money to spend.

What do you think? Are there good reasons to have or take out a mortgage? Do you consider having paid off all your debt except the mortgage to mean that you are debt free?

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4 Responses to “To Mortgage or Not to Mortgage?”

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  1. Michelle says:

    We have a mortgage but will have it paid off by the time we are around the age of 27. We needed a place to live, and apartments are roughly the same cost, so we decided to buy a house.

  2. Carrie Smith says:

    I agree with your points about when it’s okay to take out a mortgage. As long as it’s within the limits – like you suggest. At least it’s debt that backed up with an asset, instead of just random consumer debt.

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