A question I am asked quite often is “Should I view my home as an investment?”
And my simple answer is: No.
But I am getting ahead of myself.
We are told by many that the home mortgage is the largest indebtedness that most of us will take on in our lives. So it feels like an investment, with hundreds of thousands of dollars that look like a mature 401(k) balance.
And, some experts will say that we need to take out the largest and longest mortgage possible, and invest the difference. Others disagree, holding we should take out a short, 15 year fixed rate loan and pay it off as quickly as possible. Here is a post on the 15 year vs 30 year loan debate.
So it is easy to get confused and wonder.
I do a couple hundred home loans every year, and have seen just about every scenario. So with that experience, here is my take.
Your home is not an investment. Your home is shelter, security, a place to live.
Assuming you accept this premise, it still allows you a lot of leeway to structure debt around your home in many ways. As an example, if you are a disciplined saver/investor, and have the habit of putting some money away every month, then taking out a long term mortgage is a great way to go, especially now with fixed rates this low.
On the other hand, if you are nervous about the risk of investing right now, then plunk down the extra dollars on the mortgage and get it paid off in full. Nothing wrong with that, because it is true that there is risk in investing in the stock market, even with conservative strategies. And some economists put that risk higher now than in years past. There is no risk in paying off the mortgage. (And opportunity cost is not a risk, just a path not chosen under this option).
So a long term mortgage investing the difference or a short term aggressive strategy to pay the thing off are both okay. Here is my bottom line, though, no matter which option you choose: by the time your retire, have the home paid off.
That is important. Most of us will live on less income in retirement than we make now, while working. So to keep the same or similar lifestyle, we need to have less expense as well. So, choose the strategy that best suits you for the mortgage now; but don’t compromise on making sure it is paid in full by a comfortable retirement age.
Let me know if I can help you with your mortgage loan. Click to request a free rate quote. Or, just call me at 1.800.MY.LOANS (1.800.695.6267).