If I Have a Mortgage, Am I in Debt?

If I Have a Mortgage, Am I in Debt?

Written by Caitlin Wood
Last Updated September 30, 2015

Simply put, the answer is yes. If you have a mortgage you are in fact in debt. A mortgage is like any other form of loan or credit; you are borrowing money in order to purchase something you can’t afford on your own. The fact of the matter is your mortgage is probably the biggest debt you currently have. Sure it may only be one part of your total debt, but it’s there and it’s expensive so it’s in your best interest to start thinking about your mortgage as real debt that has a real impact on your financial life.

Why do people think a mortgage isn’t debt?

Lots of homeowners do not consider their mortgages when they calculate their total debts. And to be honest we completely understand why they don’t. For the most part a mortgage is a necessity for the average family, obviously this is a generalization but if you live in Canada and you have a good job or a family you probably also have a house and a mortgage. Because a house is seen as a necessity people often don’t think of their mortgages as debt.

Furthermore, debt comes with a lot of negative connotations. Technically being in debt isn’t a good thing so it makes sense that most people wouldn’t want to see their homes as a bad thing. Mortgages are a financial tool, just like a credit card, car loan or personal loan but because they are used to purchase a home people tend to be slightly more emotional about them.

There are a lot of reasons why mortgages are often not considered debt, including the fact that they are used to purchases a house which is an asset. Because assets often increase in value, a mortgage is then typically referred to as a good kind of debt. The one thing we really want toy to take away from all this is that, whether you think that a mortgage is good debt or bad debt and whether or not your emotions are involved, at some point you’re going to have to calculate the total amount of debt you have and your mortgage needs to be included.

Reasons You Need to Count Your Mortgage as Debt

Owning a home is expensive, there are countless expenses associated with both the purchasing process and then the living process. The average person understands that they’ll need to pay for utilities, insurance, repairs and upgrades along with their monthly mortgages payment. But what they don’t realize is that this is exactly why they need to consider their mortgage when calculating their total debt.

So you use your mortgage to purchase an asset, which is a good thing and technically you need somewhere to live so a house is a good idea but you still need to consider it debt, the kind of debt that costs a lot of money and that could potentially be a sink-hole for the majority of your income.

Apply for and then being approved for a mortgage that you aren’t sure you can make payments on could potentially ruin your finances. Mortgages are serious loans and put you in debt for upwards of 50 years, if this isn’t a reason to consider your mortgage when calculating your debt, then we don’t know what is.

 Is a Mortgage a Good Idea?

After all that, now what do you do? Houses are great and mortgages help you buy them so if you want to buy a house then you need a mortgage. A mortgage isn’t a bad thing; it’s just an expensive thing, which means you need to consider all your options carefully before you sign on the dotted line. So, when is it a good idea?

  • When you’ve saved up for years to help with the costs
  • If you’ve always dreamed of owning a home
  • If you fully understand the commitment you’re making

Just make sure you put a bit more thought into your decision if:

  • You feel like you should buy a house just because everyone else does
  • If the thought of a 50 years commitment is too much to handle
  • If you don’t have any money saved to help with the costs

Need Another Opinion?

A second opinion never hurts so if you’re currently thinking about purchasing a home and need some help with the mortgage process you should get in contact with one of our mortgage experts. They can help you better understand the mortgage application process and answer any questions you might have. If you want to learn about private mortgages, then click here.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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