Author Topic: Why do some people not classify mortgages as debt?  (Read 41790 times)

Giro

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Why do some people not classify mortgages as debt?
« on: March 17, 2015, 01:33:44 PM »
I've seen this trend over and over and now I'm really curious.  A mortgage is clearly a debt, so why differentiate it from other debts?

Is it because it's a relatively long term? 

not judging just trying to understand.

Gone Fishing

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Re: Why do some people not classify mortgages as debt?
« Reply #1 on: March 17, 2015, 01:40:57 PM »
Mortgages are debt, that's for sure, but I think what you may be seeing are those on the forum that could have paid off their mortgages long ago, but hold onto them so they can invest more in the market and hopefully realize gains larger than their interest expense.  Not to difficult to justify when mortgage rates are in the 3% range.

PeachFuzzInVA

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Re: Why do some people not classify mortgages as debt?
« Reply #2 on: March 17, 2015, 01:58:39 PM »
It doesn't make much sense to me. If I owe somebody money, regardless of what it's for, it's debt. I also don't view a home as an asset like many people do either.

DragonSlayer

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Re: Why do some people not classify mortgages as debt?
« Reply #3 on: March 17, 2015, 02:05:54 PM »
Debt is debt, but since you have to pay to live *somewhere* even if you rent, I think some people just view it as an expense. They're be paying rent if they didn't have a house, so they view it as a wash. And if your mortgage is affordable and not some mcmansion loan, I can see their argument. It doesn't make it not debt because you owe it, but I can see their thought process.

KithKanan

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Re: Why do some people not classify mortgages as debt?
« Reply #4 on: March 17, 2015, 02:08:31 PM »
I think it's a little different than other dept, to the extent that (short of buying a house cash, and if you're unable to live rent-free with parents) the alternative to a mortgage is paying rent as opposed to not paying anything, and having a mortgage could be cheaper (despite adding in the interest portion of the mortgage, property taxes, the difference in cost between homeowner's and renter's insurance, HOA fees if any, required repairs/maintenance etc.) than paying rent. It could also be a lot more expensive -- it really depends on the market conditions in your time/place.

Gone Fishing

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Re: Why do some people not classify mortgages as debt?
« Reply #5 on: March 17, 2015, 02:12:20 PM »
Can the OP provide some examples?  That may help address the question.

Giro

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Re: Why do some people not classify mortgages as debt?
« Reply #6 on: March 17, 2015, 02:18:15 PM »
I've seen 

"debt-free except the mortgage"
"just paid off all of my debt, now to tackle the mortgage"


It does make sense if you consider housing as an expense.  I can sorta buy that.  But, it's a slippery slope because some people see car loans as necessary transportation expense. 

Gone Fishing

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Re: Why do some people not classify mortgages as debt?
« Reply #7 on: March 17, 2015, 02:22:37 PM »
I don't think they are not considering it debt.  Just noting that they have paid off all of their higher rate CC/student/car debt.

Giro

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Re: Why do some people not classify mortgages as debt?
« Reply #8 on: March 17, 2015, 02:26:08 PM »
ok. 

Just seems a little odd.  I would love to say "retired early except the last 4 years of work".

which now that I type it sounds pretty darn fun to use.  haha


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Re: Why do some people not classify mortgages as debt?
« Reply #9 on: March 17, 2015, 02:29:12 PM »
I don't consider it debt because it isn't really a consumer issue, I didn't take on more than I can chew in school costs, cars, random crap on a credit card. I have to live somewhere, and the payment is no different than rent.
And it makes zero sense to pay it off at such a low rate. (We have more than enough money to pay it off, and we do throw a bit extra at it because we can.)


It is a debt, obviously, but I just frame it differently, because unlike every other kind of debt (including medical, which just sucks so much because that is usually a bad luck thing) I don't see the need to pay it off anytime soon. 

People don't consider rent a debt- but they have to pay that every month, and if they don't, the apartment they lease will be taken away from them.  It is only at the end of the term of the lease that you can walk away no penalty.
« Last Edit: March 17, 2015, 02:46:34 PM by iowajes »

Kris

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Re: Why do some people not classify mortgages as debt?
« Reply #10 on: March 17, 2015, 02:42:08 PM »
I think maybe people are thinking of it as "good" debt, as opposed to bad debt like CC balances. 

It's still debt, though. 

For me, right now I don't 100% think of mine as debt anymore, because I'm pretty sure that I will at least break even when we sell in 3 years. Meaning nothing to pay off, debt-neutral.   So, in a way, I think of my mortgage payment as more like rent

neil

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Re: Why do some people not classify mortgages as debt?
« Reply #11 on: March 17, 2015, 02:56:31 PM »
People don't consider rent a debt- but they have to pay that every month, and if they don't, the apartment they lease will be taken away from them.  It is only at the end of the term of the lease that you can walk away no penalty.

This is an excellent point.  People generally don't see contracts as debts, but they qualify in the technical sense.  Many young people may consider themselves debt-free but they are very likely either in a cellular or cable contract.  The option to buy equipment in the clear is a possibility and it is often not taken.

I suppose regarding rent, you could go on month-to-month to make a point, but in my area that can cost you around 20% more.

Some government assistance (college grants?) have some expectation to be repaid through future tax, but it would be hairy to consider this as your tax bill isn't exactly negotiable.

Travis

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Re: Why do some people not classify mortgages as debt?
« Reply #12 on: March 17, 2015, 03:16:04 PM »
Just saying the words "I'm in debt" sounds like you're in a bad situation, but paying on a mortgage is considered quite normal so separating the two makes sense in that regard.  You can buy a car with cash in most circumstances, while paying cash for a home is rather rare so incurring a mortgage is just another expense rather than a debt that is dragging you down.  You can live in a home while paying a mortgage and even use it to generate revenue while having credit card debt has no benefit.

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Re: Why do some people not classify mortgages as debt?
« Reply #13 on: March 17, 2015, 03:39:58 PM »
I've seen this trend over and over and now I'm really curious.  A mortgage is clearly a debt, so why differentiate it from other debts?

Is it because it's a relatively long term? 

not judging just trying to understand.

A house, or rental house, is something you hopefully have equity in. So many people may be making payments on a property but they do not consider themselves to be in debt because the property has a positive net value. If you own a home and have a mortgage of $200,000 but the home is now only worth $160,000, then yes indeed you are in debt. On the other hand, if you own a home worth $200,000and your balance is only $50,000, most people would not consider that being in debt even though they have a payment on the house. They could always sell the house and walk away with well over $100,000 in hand.

I think a lot of people look at their financial net worth and define it in terms of assets and liabilities. Debt is a bit of a loaded word. It is fair to say that mortgage payments do affect cash flow significantly, and that's probably a better discussion. It is certainly true in our case, the mortgages on our primary residence and our rental home are very real line items in our monthly budget, but by no stretch of the imagination would I define us as being "in debt" given the equity we have in both of them.

dunhamjr

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Re: Why do some people not classify mortgages as debt?
« Reply #14 on: March 17, 2015, 04:11:08 PM »
A lot of people don't think of mortgage as debt because they have to live somewhere.  Many places paying rent is more than mortgages.  Plus its a payment out of your pocket either way unless you have a 100% paid off place to live.  But those places will still often/always have home insurance and real estate taxes due, so still not free.

If you want to look at assets and debts at the most basic level.  Assets put money in your pocket.  Debts take money out.  Then yes its a debt.

But its also often thought of as 'good debt' because it offsets the rent payment.  Some portion of it will likely be tax deductible. Plus real estate over the long term does often appreciate.

I pretty much say that I am debt free, but I typically qualify that with "except for my two mortgages" (primary/rental).

Bateaux

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Re: Why do some people not classify mortgages as debt?
« Reply #15 on: March 17, 2015, 04:51:03 PM »
A mortgage  is absolutely  positively  debt.  You don't  pay, they come get.  If you're  upside down on the loan as so many were in the bubble, they come get and hand you a bill.

Davids

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Re: Why do some people not classify mortgages as debt?
« Reply #16 on: March 17, 2015, 05:01:22 PM »
Mortgage is debt, rent is not. You can be debt free while renting an apartment but if you have a mortgage then you are not debt free. With that said there is nothing wrong with having mortgage as debt, especially given the current rates. I recently refinanced to a 15 year at 3.125% (I was previously on a 30 year at 4.25%).

kpd905

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Re: Why do some people not classify mortgages as debt?
« Reply #17 on: March 17, 2015, 06:02:11 PM »
People might just state this because the interest rate is so low.  They take care of debts 5%+, then make minimum payments on the 3% mortgage.

clarkfan1979

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Re: Why do some people not classify mortgages as debt?
« Reply #18 on: March 17, 2015, 08:22:49 PM »
I don't do drugs, except alcohol.

Alcohol is a drug that most people are comfortable with.

MrMoneyPinch

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Re: Why do some people not classify mortgages as debt?
« Reply #19 on: March 17, 2015, 08:32:35 PM »
I've seen 

"debt-free except the mortgage"
"just paid off all of my debt, now to tackle the mortgage"


It does make sense if you consider housing as an expense.  I can sorta buy that.  But, it's a slippery slope because some people see car loans as necessary transportation expense.

If you are very theoretic about it, yes, a debt is a debt is a debt.

BUT.  Since mortgages are usually taken for a multiple of someone's yearly income, it cannot be anything else than a long-term commitment.  Cars can be bought with a few thousands (or months of average wage), so clearing/avoiding that is quite easy.  You can't get out of a mortgage quickly, and saving for a few decades renders the point of buying a house moot.

"Debt-free except mortgage" is also a very worthwhile milestone to get going.   Most people are paralyzed by big objectives, that is the human nature;  the bigger the objective, the longer it stays in the "someday I'm gonna..." stage.  I call this "The Best is the enemy of Good" effect.  That is why Dave Ramsey does the debt snowball starting from the smallest debts and working up, even if it would be best to order by highest interest rate.

BlueHouse

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Re: Why do some people not classify mortgages as debt?
« Reply #20 on: March 17, 2015, 08:37:53 PM »
Many people consider their home an investment.   Every time I've put a contract on a home and agreed to pay for it, my net worth increased substantially within a few months.  Now there was that time that I bought in 2005 and my net worth decreased, but because I didn't have to sell at an inopportune time, I have recovered most of the value.   
The simple fact of the matter is that owning real estate is one of the best and most accessible ways to build wealth for most people.  It's a way to force savings and a way to let that savings grow through land appreciation. 

wxdevil

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Re: Why do some people not classify mortgages as debt?
« Reply #21 on: March 18, 2015, 01:00:00 AM »
The principal on the mortgage is not debt, only the interest associated with the mortgage is. Each payment you make, a percentage goes towards principal, which in effect is just transferring your money to your home equity. The interest part of the payment is the only part that vanishes, while the principal payment still contributes to your net worth.

MrsPete

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Re: Why do some people not classify mortgages as debt?
« Reply #22 on: March 18, 2015, 06:23:58 AM »
I think two things play into this false mind-set:

1.  The idea that "everyone" has a mortgage; thus it doesn't really count as debt.  Closely related is the idea that no one could ever actually pay off a mortgage. 

2.  The idea that a mortgage is "good debt" because it isn't consumer debt. 


Giro

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Re: Why do some people not classify mortgages as debt?
« Reply #23 on: March 18, 2015, 06:30:40 AM »
I think two things play into this false mind-set:

1.  The idea that "everyone" has a mortgage; thus it doesn't really count as debt.  Closely related is the idea that no one could ever actually pay off a mortgage. 

2.  The idea that a mortgage is "good debt" because it isn't consumer debt.

+1
 
I agree.  I don't see much of a difference in car payments and mortgages.  We paid cash for our home.  We were able to do that not because we had a bunch of cash, but because we bought a crazy cheap short sale and spent FAR less than the average home price.  People on this forum advocate all of the time to buy an inexpensive vehicle for cash.  Why not take the same approach to homes?  Our home is gorgeous and we walked into several thousands of dollars in equity and we have no mortgage payment.  It's pretty win-win.


nereo

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Re: Why do some people not classify mortgages as debt?
« Reply #24 on: March 18, 2015, 07:01:38 AM »
ok - just playing a bit of devil's advocate here...

why isn't a monthly rent considered a debt? 

Sure, you pay for the current or previous month (depending on your lease) and each time you pay you are 'paid in full' much like using a credit card and paying off the balance in full each month.  And most people like to lump these as 'expenses' rather than 'debt'.  But from a philosophical standpoint it is money I owe to someone else in monthly installments, and if I don't pay it bad things happen.

For a broader question, why do we make such a distinction between monthly, reoccurring expenses (rent, insurance, utilities, etc) and monthly payments for a loan.

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Re: Why do some people not classify mortgages as debt?
« Reply #25 on: March 18, 2015, 07:42:52 AM »
Maybe it's not debt by strict definition, but I do see housing rent functionally very similar to debt if it's part of a term lease. Same applies to contracts for car leases and those 2-year commitments on cell phones, satellite TV and security monitoring. The cost to get out may be variable, but once you're in one of those you've committed to pay something of substance.

nereo

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Re: Why do some people not classify mortgages as debt?
« Reply #26 on: March 18, 2015, 07:53:16 AM »
Maybe it's not debt by strict definition, but I do see housing rent functionally very similar to debt if it's part of a term lease. Same applies to contracts for car leases and those 2-year commitments on cell phones, satellite TV and security monitoring. The cost to get out may be variable, but once you're in one of those you've committed to pay something of substance.
yes - that's the basis of my point.  If I sign a 1 year lease or a 2 year cell-phone contract i have a monthly payment schedule that's virtually the same as if I had taken out a similar sized loan for the same periods.  There may be contractual differences but practically speaking they are all expenses paid monthly.

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Re: Why do some people not classify mortgages as debt?
« Reply #27 on: March 18, 2015, 08:32:42 AM »
My impression is not so much that there are people who do not classify mortgages as debt; rather, that many people classify mortgages in a different category of debt, i.e. good debt vs. bad debt. I consider a fixed low-interest mortgage to be a good debt, because it allows me to invest more heavily than I would otherwise. Similarly, the balances on my credit cards that get paid in full at the end of each month are a good debt, because I earn cash back and rewards and I do not accrue interest. I think most people who use credit cards similarly would not report it as debt, even though it is semantically debt.

larmando

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Re: Why do some people not classify mortgages as debt?
« Reply #28 on: March 18, 2015, 10:59:27 AM »
A mortgage is debt. That said it's a debt secured by a property *usually* worth more than the balance. In that case the property is a leveraged asset: it can be sold to repay the debt, it can be rented and generate cash flow. As such, yes, one has debt and risk, but it's different from having credit card debt, or most car loans which are high interest and in negative equity.

FarmerPete

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Re: Why do some people not classify mortgages as debt?
« Reply #29 on: March 18, 2015, 11:21:53 AM »
I would categorize it as secured debt.  Whether it's good or bad, I don't know, but it is different than unsecured debt (CC, SL, etc).

Sid Hoffman

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Re: Why do some people not classify mortgages as debt?
« Reply #30 on: March 18, 2015, 11:47:53 AM »
why isn't a monthly rent considered a debt?

Well spartana answered this already but you can start with the fact that words have meaning.  Here is the investopedia definition of debt:

Quote
DEFINITION of 'Debt'

An amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Rent doesn't qualify for any of the important defined components of what debt is.  First off, rent is paid in advance.  For example, when I moved in to my current rental, I paid the security deposit as well as the first month's rent in advance of being allowed to move in.  If anything, the homeowner is in debt to ME, because I am the one who paid first.  Second, the definition of debt is that a loan takes place, which is present in rent.  The homeowner doesn't loan me anything.  Again, if anything, I loaned them the money in advance and they paid it back by letting me live in the house.  Third, it states that debts are usually repaid with interest.  There is no interest going on with rent.  Sure, you get super shady deals like Rent-A-Center where they claim they're renting appliances to people but it's functionally an illegally high interest rate loan.

Still, with true rent you never own the object in question, thus it does not qualify as debt in any way at all.

Travis

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Re: Why do some people not classify mortgages as debt?
« Reply #31 on: March 18, 2015, 12:23:06 PM »
Quote
Sure, you get super shady deals like Rent-A-Center where they claim they're renting appliances to people but it's functionally an illegally high interest rate loan.

And there's the distinction.  Most if not all debts come with an interest rate.  The difference between renting, a cell phone contract, and a mortgage is the first two are known fixed amounts.  A mortgage, car loan, and credit cards actually cost more the longer it takes you to pay them off.  With a cell phone you could do a number of things to reduce the size of your bill and still maintain the obligation to be on contract.  The question of ownership is also a factor.  If you break the contract on the phone you'll owe a penalty, but that'll be the end of it. AT&T won't come to confiscate your phone while the bank or Rent A Center will take your house, car, or furniture if you still owe them money.

eccdogg

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Re: Why do some people not classify mortgages as debt?
« Reply #32 on: March 18, 2015, 12:36:13 PM »
It definitely is debt,

But I think when most people say I am "In Debt" they mean they have a net worth less than zero and that is seldom the case with mortgage debt.

Secondly for some reason debt has a negative conotation.  There is really nothing at all wrong with having cheap secured debt.  I could have paid cash for a used car I recently bought, but they offered me 2%.  Hard  to pass that up when the S&P dividend yield was nearly 2%.  So I took on more debt but also increased my investments at the same time.


dunhamjr

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Re: Why do some people not classify mortgages as debt?
« Reply #33 on: March 18, 2015, 01:16:20 PM »
ok - just playing a bit of devil's advocate here...

why isn't a monthly rent considered a debt? 

Sure, you pay for the current or previous month (depending on your lease) and each time you pay you are 'paid in full' much like using a credit card and paying off the balance in full each month.  And most people like to lump these as 'expenses' rather than 'debt'.  But from a philosophical standpoint it is money I owe to someone else in monthly installments, and if I don't pay it bad things happen.

For a broader question, why do we make such a distinction between monthly, reoccurring expenses (rent, insurance, utilities, etc) and monthly payments for a loan.

pretty much what i was going to come back with.

its a bit funny to say that a mortgage is debt even though it is actually a finite expense with a defined ending, that you can actually accelerate.

but rent is an expense.  even though, its basically a requirement to live (not 100% sure).  and has no ending date, since you will always need a place to live, and therefore always have the 'debt' payment, no matter what you do.  you cannot pay it off early (other then to prepay), and it will be there every month till death.

IMO, a mortgage in that light is LESS of a debt because you will actually own an asset once the mortgage is paid.  and it will stop draining payments out of you after that mortgage term is completed.  whereas rent will always be a set payment as long as you need a place to live.

we can argue debts versus expenses any both sides will be right depending on the opinion.

the end game is that BOTH are housing expenses, money going out is an expense.
but a mortgage is a housing expense that has a specific term/preset amount after which the expense is gone.

Sid Hoffman

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Re: Why do some people not classify mortgages as debt?
« Reply #34 on: March 18, 2015, 01:36:20 PM »
dunhamjr, I would argue that you don't get to just make up definitions to words.  A debt is something that you must pay back after money was loaned to you.  A mortgage is a form of debt, although a very beneficial one to most people.  Still, it is debt because it's a dollar amount you must pay back.  Rent is not debt because you were never loaned money, it is an expense.  Yes, it might be an expense with no sunset but that's still an expense.

The biggest difference between debt an an expense is that you can stop an expense, whereas a debt must be paid back.  For example, if I rent a house for $1000/month and the housing market collapses, I can finish paying rent at the end of my term and that's it.  Or technically I can stop paying early and just get hit with an early termination fee, which is usually the surrender of the security deposit.

However a mortgage has to be FULLY repaid in order to be satisfied.  If I buy a house and have a $1000/month mortgage prior to that 50% drop in home prices, I do not get to just sell the house and move on.  Sure, a lot of people sort of did that from 2008-2012 but it still isn't how the process works.  The mortgage must be fully repaid in order to be considered fully satisfied.  Unlike the rental where you can walk away regardless of the value of the underlying asset, a mortgage is debt because it must be fully repaid.  Rentals don't have any loan associated with them, thus there is no "full repayment" to take place.  That's the difference between an expense and debt.

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Re: Why do some people not classify mortgages as debt?
« Reply #35 on: March 18, 2015, 01:38:15 PM »
 
Third, it states that debts are usually repaid with interest.  There is no interest going on with rent. 
You do say usually- but if no interest (as in rent) is the hallmark of no debt- then is a 0% credit card offer or a 0% car loan (very common) not a debt?  Absolutely not- they are incurred expenses that MUST be paid.

Heck, eating at a restaurant where you don't prepay is a debt too...
You are incurring an expense that you must pay back- it's basically a no interest loan.  You are in debt to the restaurant until you settle up the bill. 
People run tabs at bars- most pay at the end of the night, but there are some places that will run your tab for the week or the month- that is no different than a line of credit, except it is private with the bar.

I'd say unless you prepay on a month to month agreement, rent is definitely debt. You are in a contractual agreement to pay someone, and there are penalties if you don't pay it. 
« Last Edit: March 18, 2015, 01:41:13 PM by iowajes »

nereo

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Re: Why do some people not classify mortgages as debt?
« Reply #36 on: March 18, 2015, 01:58:06 PM »
I'd say unless you prepay on a month to month agreement, rent is definitely debt. You are in a contractual agreement to pay someone, and there are penalties if you don't pay it.
This.  I've been thinking up complicated responses but I think this summarizes this (largely philisophical) discussion well.  In many cases, you sign a lease for a year or more, promising to pay $X / month in exchange for housing.  You are obligated to pay that amount every month for the length of the lease (synonymous with 'term').  If you don't you are in breach of contract.  Typically you will loose your security deposit and that will be the end of it, although landlords can and do go after renters who fail to complete their term (depending on the local regulations).

I can make a similar argument with a cell-phone contract.  Especially if the phone is subsidized, I agree to pay a certain amount each month until the end of the contract.  If I don't the company can take me to collection, and I can be charged additional fees and interest.  Practically speaking, I fail to see how it is any different from taking out a $1000 loan from the bank with a 2 year repayment schedule.  If I miss payments to the bank I am hit with fees and interest.

Finally, since you have twice brought up the definition aspect, I challenge your definition that 'debt' must only be about money. 
Quote
A debt is something that you must pay back after money was loaned to you.
A quick search for the definition of 'debt' suggests that it can include money, goods or services owed to an individual, corporation or government, or "an obligation to pay or render something to someone else" as well as "the state of being under an obligation."
Debts do not necessarily have to be monetary in nature.  They also do not need to involve interest. 

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Re: Why do some people not classify mortgages as debt?
« Reply #37 on: March 18, 2015, 02:02:00 PM »
It is a debt but it isn't all that bad…you lock your housing price if you have a fixed rate, except for taxes and insurance…and with time your home will go up in value usually.



dunhamjr

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Re: Why do some people not classify mortgages as debt?
« Reply #38 on: March 18, 2015, 02:08:57 PM »
dunhamjr, I would argue that you don't get to just make up definitions to words.  A debt is something that you must pay back after money was loaned to you.  A mortgage is a form of debt, although a very beneficial one to most people.  Still, it is debt because it's a dollar amount you must pay back.  Rent is not debt because you were never loaned money, it is an expense.  Yes, it might be an expense with no sunset but that's still an expense.

The biggest difference between debt an an expense is that you can stop an expense, whereas a debt must be paid back.  For example, if I rent a house for $1000/month and the housing market collapses, I can finish paying rent at the end of my term and that's it.  Or technically I can stop paying early and just get hit with an early termination fee, which is usually the surrender of the security deposit.

However a mortgage has to be FULLY repaid in order to be satisfied.  If I buy a house and have a $1000/month mortgage prior to that 50% drop in home prices, I do not get to just sell the house and move on.  Sure, a lot of people sort of did that from 2008-2012 but it still isn't how the process works.  The mortgage must be fully repaid in order to be considered fully satisfied.  Unlike the rental where you can walk away regardless of the value of the underlying asset, a mortgage is debt because it must be fully repaid.  Rentals don't have any loan associated with them, thus there is no "full repayment" to take place.  That's the difference between an expense and debt.

And I would argue that I am using the definition just fine.
>>>
A debt generally refers to money owed by one party, the debtor, to a second party, the creditor. Debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest.[1] The term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.
>>>

Whether the creditor is a bank, in the case of a mortgage.  Or the a landlord in the case of a rental.  You still have a contract to pay that party X amount at Y time.  My lease agreements spell the exact scenario as described above out, and its a rental.  Just because the terms are more complex on a mortgage, or lacking interest in the case of a rental... does not mean they are not both equally definable as debts.

As for an expense being stopped.  Ok, go rent a house... but stop paying rent 3 months in.  How does that work out for you?
Or.
You stop paying the rent expense, because you move.  Do you move to the underpass, or are you moving to a new rental? 

If you remain a renter, your rental expense is still there until you die, find some method to live rent expense free, or buy a house of your own.
If you are a mortgage holder, you owe someone a debt.  You can get rid of that debt by selling the house.  Just as you can get rid of a rental expense by no longer renting.

And no.  Mortgages do NOT need to be fully repaid to be satisfied.  Foreclosures and short sales prove that every day.

If you want to keep the house yes, but the same would be said for staying in a rental unit.  You don't pay the rent in full, they kick you out.  You don't pay the mortgage in full, they kick you out.  Same. Same.

You can walk away from both scenarios.  One may be slightly more harmful to your credit for a while.  But its very doable no matter mortgage or rental.

I am fine to leave the argument here because we are not likely to convert the others thinking, since both are valid ways to look at the scenario.
« Last Edit: March 18, 2015, 02:14:50 PM by dunhamjr »

Retire-Canada

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Re: Why do some people not classify mortgages as debt?
« Reply #39 on: March 18, 2015, 03:08:31 PM »
A mortgage  is absolutely  positively  debt.  You don't  pay, they come get.  If you're  upside down on the loan as so many were in the bubble, they come get and hand you a bill.

If you have no mortgage and don't pay your property taxes each year they'll come take it away from you as well so in that sense there is no way to own a home and not be in debt whether or not you have a mortgage.

I don't consider my mortgage a debt in the same category as a car loan or a LOC as it's an asset that can be sold for more than the loan is worth and the cost of operating the loan is the same as a rental. I'm just renting from myself.

So saying I'm debt-free and I have a mortgage is completely reasonable to me.

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BlueMR2

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Re: Why do some people not classify mortgages as debt?
« Reply #40 on: March 18, 2015, 03:14:13 PM »
It doesn't make much sense to me. If I owe somebody money, regardless of what it's for, it's debt. I also don't view a home as an asset like many people do either.

Same here.  The "you have to live somewhere" argument that's often trotted out makes no sense to me.  You owe money, it's debt, that simple.

I also don't view a house as an asset.  They're hard to turn into decent cash in a hurry (you either have to take a big hit or wait a loooong time) and while owned, they suck down resources like the proverbial ethnic person on the ethnic drinking festival days.  :-)

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Re: Why do some people not classify mortgages as debt?
« Reply #41 on: March 18, 2015, 03:18:24 PM »
It doesn't make much sense to me. If I owe somebody money, regardless of what it's for, it's debt. I also don't view a home as an asset like many people do either.

Same here.  The "you have to live somewhere" argument that's often trotted out makes no sense to me.  You owe money, it's debt, that simple.

I also don't view a house as an asset.  They're hard to turn into decent cash in a hurry (you either have to take a big hit or wait a loooong time) and while owned, they suck down resources like the proverbial ethnic person on the ethnic drinking festival days.  :-)
Hey!! I'm an ethnic person who sometimes drinks on my ethnic festival days!!! 

ender

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Re: Why do some people not classify mortgages as debt?
« Reply #42 on: March 18, 2015, 03:45:17 PM »
Nearly all other debt types - consumer, student loans, cars, etc - effectively are post-spending debt. Rarely when they are paid off do you have anything even remotely close to the value of your initial debt.

Mortgages tend to unique debt in that the assets do not depreciate to zero. The debt actually has some value after being paid off.

This is independent of the "rent vs buy" decision.

bludreamin

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Re: Why do some people not classify mortgages as debt?
« Reply #43 on: March 18, 2015, 04:00:43 PM »
Interesting discussion. I agree that debt as only a money  obligation is too narrow. I like this definition from businessdictionary.Com:
Quote
debt
A duty or obligation to pay money, deliver goods, or render service under an express or implied agreement. One who owes, is a debtor or debitor; one to whom it is owed, is a debtee, creditor, or lender.

From this I think any agreement (contact) you sign that requires you to pay at a set interval (including any auto renew service such as Netflix) is a debt. In the case of a rental agreement the renter is owed space for the rent money they owe and the landlord is owed rent money for the space they owe the renter.


The differences  (but i acknowledge - major differences) I see between rent and mortgage is the ease of ending the contract, length/term of contract, and dollar amount of the contract. note not value of - that's something you have to evaluate yourself. Personally I value the mortgage (homeownership) higher than rental contracts.

This was topped on my phone so please forgive any spelling or grammar mistakes.

dunhamjr

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Re: Why do some people not classify mortgages as debt?
« Reply #44 on: March 18, 2015, 04:01:15 PM »
I also don't view a house as an asset.  They're hard to turn into decent cash in a hurry (you either have to take a big hit or wait a loooong time)

whether something is an asset or not is not dependent on how quickly you can turn it into cash.
just that is can be turned into cash.

again.  you can count things however you like.

but not counting a paid off house as an asset seems strange.

Retire-Canada

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Re: Why do some people not classify mortgages as debt?
« Reply #45 on: March 18, 2015, 04:05:00 PM »
but not counting a paid off house as an asset seems strange.

And a house with a $400K market value and a $200K mortgage is also an asset. It's a $400K asset with a $200K liability attached.

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Re: Why do some people not classify mortgages as debt?
« Reply #46 on: March 18, 2015, 04:21:26 PM »
Of course a mortgage is debt and a house is an asset.

My mortgage doesn't bother me especially as my interst rate is low, it is a small amount and I couldn't rent a two bedroom apartment for what I pay for a four bedroom house. But it is absolutely debt.

My house is absolutely an asset. I can sell it for considerably more than I paid for it. Even if it would be less than I owe for it, the house is,still an asset. But my liability in it is greater than the value of the asset.

It is not a liquid asset, but many very valuable things aren't terribly liquid.

Check2400

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Re: Why do some people not classify mortgages as debt?
« Reply #47 on: March 18, 2015, 04:45:01 PM »
I think Vikb and Pigeon have gotten as close to the answer as you'll get.  There is not disputing that a mortgage is a debt.

BUT

It is a debt against the house first, and only against the person should the proceeds from the house fail to satisfy that debt.  So if the house has more equity in it that is owed on the debt, then you have no debt, but your asset is only the delta between equity and obligation.  This changes the perspective.  It allows for subsequent payments on the debt to be seen as an investment instead of a repayment since you have already accumulated sufficient equity to pay off the debt.

Put another way, as Vikb says, a $400,000 house with $200,000 of debt attached to the house has $200,000 in equity leftover for the owner.  The failure to pay that debt forecloses, or forces a sale, of the house.  Since you theoretically can sell for a $200,000 profit, you personally have no debt, simple a secured piece of real property to satisfy the debt.  So therefore any payments after the equity>debt are investments into the equity. 

That explains the removal of interest and taxes as they are unsecured and add no equity.  It also explains the difference between rent v. mortgage, as each month a payment is made that does not accrue equity nor allow for appreciation.

I do disagree that a lease is a debt of the entire amount as it is not wholly vested as of the execution.  The various exit clauses allow for termination upon agreed upon events in the lease.  However, the passage of time without those events occurring therefore vests a new payment on the debt.  Legal semantics, yes, but still a perspective.

The simple answer is that classification is relative and subjective.  I don't classify my mortgage as a debt because my house is obligated to pay it back if I default.  Since the house has more equity than the debt, I personally have an asset since I get the remainder. 

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Re: Why do some people not classify mortgages as debt?
« Reply #48 on: March 18, 2015, 05:26:21 PM »
As for an expense being stopped.  Ok, go rent a house... but stop paying rent 3 months in.  How does that work out for you?

With a mortgaged house, if you stop paying the mortgage, they come after you for the full balance of the mortgage, regardless if the home equity is sufficient to repay the mortgage.  Equity is $18,000 short?  You still owe all the money including the $18,000.

Sign up for a rental and stop paying rent?  Nothing happens financially.  It will ding your rental history and you won't get your security deposit back, but nobody can come after you to pay the full 12 months of rent.  It's simply not legal.  You are NOT required to pay back the 12 months of rent if you move out after only 3 months.  In fact I actually called my property management company to ask what happens if I move out early.  They said as long as I give them notice, I simply don't get a refund of my security deposit.  They can NOT legally come after you and force you to pay the full 12 months or however many months you have remaining.  You know why?

Because rent isn't debt.

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Re: Why do some people not classify mortgages as debt?
« Reply #49 on: March 19, 2015, 09:31:48 AM »
They can NOT legally come after you and force you to pay the full 12 months or however many months you have remaining.  You know why?

Because rent isn't debt.

In Iowa, if you have a lease, the landlord CAN come after you for unpaid rent if you move out before term- up until the point that a new tenant moves in, and they must show the court that they attempted to find a tenant.  But if not tenant is found, you are 100% obligated to pay the debt to them. Because you signed a contract agreeing to pay that amount over a course of a year.

 

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