Author Topic: Mortgage Principal counted toward savings rate?  (Read 1957 times)


  • 5 O'Clock Shadow
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Mortgage Principal counted toward savings rate?
« on: April 04, 2015, 03:53:29 PM »
Did a quick search, and I'm sure it's been discussed here, but I didn't see what I was looking for.  If I have a $1000 mortgage principal and interest payment and $600 for that month is principal, do I count that $600 in my savings rate?

Is it just a question of if you're counting home equity in your net worth or not?  I guess if you are, then you would count the principal amount as part of your savings rate?

I tend to lean toward not counting it, but I see such high savings rates and wonder how they are possible.  People with 50+% savings rates, does that count monthly mortgage principal?


  • Handlebar Stache
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Re: Mortgage Principal counted toward savings rate?
« Reply #1 on: April 04, 2015, 04:25:21 PM »

If you do it MMM's way, then yes, mortgage principal payments can be counted as a form of savings. I am just converting one asset -- liquid cash -- into another asset -- real estate equity -- that I still possess and is therefore savings. It's a net-worth-neutral transaction. Likewise, if I take some of my liquid cash and convert it into an IRA contribution, that's still mine and is also savings because it's a net-worth-neutral transaction.

In contrast, mortgage interest payments go to my lender, and that money is no longer mine in any fashion. That's an expense.


  • 5 O'Clock Shadow
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  • Bristles
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Re: Mortgage Principal counted toward savings rate?
« Reply #3 on: April 04, 2015, 05:27:56 PM »
Yes, I do. Especially when $1505 of my monthly $1640 payment goes towards principal! That increases my NW by more than $18K/year.


  • Walrus Stache
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Re: Mortgage Principal counted toward savings rate?
« Reply #4 on: April 04, 2015, 05:48:40 PM »
Yes, sort of, but...   Asking this question (to me) says you are asking the wrong question.

Savings = Income - Expenses

The principal isn't part of this equation, therefore, it becomes part of savings.  The principal isn't an expense.  It is an asset transfer from one asset (i.e. checking account) to another (i.e. home equity -- via lowering liability).

You need to understand the differences between assets/liabilities and income/expenses.  Otherwise you will likely run across this question in other situations.
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