Come on guys, it's really not that bad: How a mortgage can be good for you

Hate to break it to you but unless you plan to hunker down in Mom and Dad's basement for the rest of your life, there's little chance you'll ever be able to live anywhere without paying for it.

Nesting costs money  — whether it's in a ranch-style house in the suburbs, a townhome in the center city or a mobile home 15 miles from the nearest Walmart.  

And despite the fear and loathing that typically come with taking on a mortgage (i.e. the drudgery of paying for the same thing over the next 15 to 30 years), experts say it's among the best kinds of debt one can accumulate in his or her lifetime.

Seriously. Here's why:

 

What's good debt?

First, try to wrap your mind around the concept of "good" debt (not easy, we know). Some debt is beneficial, especially the kind that creates value or produces wealth for you in the long run, such as student loans (responsibly), business loans (again, responsibly) and, you guessed it, mortgages (you guessed it, responsibly).

Compare that with "bad" debt sources (like cars, clothes and credit cards), which cost lots of money, have tons of interest and lose value as soon as you wear or drive them off the lot.

A mortgage, however, "is most likely the lowest interest debt you're going to have," says Dr. Laura Ullrich, the assistant dean for innovation and productivity at Winthrop University in Rock Hill, S.C. "Your mortgage is cheap money."

What makes a mortgage good?

The value.

When you pay down your mortgage, you're pouring money into a tangible asset that, ideally, will go up in value over time (we in the biz call that "appreciation").

It may feel monotonous month-to-month but those house payments go a long way toward reducing your overall debt load and giving you some stability in the future.

"You're buying into an asset and it is something that should appreciate over time while, in reality, your payment for it is decreasing," Ullrich says.

And it helps you build equity — something you'll want if you decide to start a small business, take out a personal loan or need additional capital should something happen to your primary stream of income, she says.

If all goes according to plan, once you pay off your mortgage, you can ease into retirement since you won't have any housing costs. Sounds nice, doesn't it? 

But it's so expensive…

There's no escaping it: Buying a house will be one of the biggest financial commitments of your life (no pressure). It comes with tons of costs you need to consider way before you start weighing laminate versus hardwood floors in your coveted open-concept kitchen.

You may be asking: "Well, why don't I just rent for the rest of my life? After all, I'll save much more money."

But will you? Will you really?   

Rental rates in many U.S. cities are on the rise and, in some of the country's largest metros, outpace most household incomes, according to the Furman Center for Real Estate and Urban Policy at New York University. Meanwhile, a study last year from Trulia showed that buying a home is 23 percent cheaper than renting nationwide for Millennials in particular.

"You can rent (but) it's a sunk cost," says Ron Mathieu, a Movement processor and former loan officer. "You're not getting that money back."

And while renting in some markets does make more sense, Ullrich adds that "you're not buying into the asset so you don't have any equity in it. You're not building wealth."

Buyers have the advantage

Be honest: The housing crisis a few years ago left you a bit skittish.

We get it. But here's the thing: We're now on the other side of the recession and the mistakes of the past — mainly, the lack of regulation in the banking industry — have been corrected. With the advent of regulation such as TRID and the formation of the Consumer Financial Protection Bureau, the mortgage industry has a laser-sharp focus on serving the consumer and maintaining transparency.

Basically, buyers have a lot of the power. They also have resources, such as the NMLS Consumer Access portal, which allows them to check the licensing of mortgage companies, loan officers and real estate agents, and discover if they have any disciplinary actions levied against them.

"If you sell crappy loans, they know about it," Mathieu says. "Everything is tracked. Everything is geared toward the consumer."

Can mortgage debt be bad?

 

Alas, yes.

One of the worst things you can do as a homeowner is taking on a mortgage way above your means to pay for it, Ullrich says.

That leaves you with a long-term debt that, should you fail to pay it off, results in you defaulting on your loan and potentially losing your home to foreclosure

Another potentially bad move: Using the equity in your home to take out loans you can't repay and that use your home as collateral. If you're unable to make those payments, you can pretty much kiss your house goodbye.

Let's say I can afford it…

 

Then talk to a mortgage professional.

You have to pay to live somewhere anyway. Why not lock in a low interest rate and get started on an investment that will pay off in years to come?