This article is part of our Subprime Survival Guide.
Although "till death do us part" is a solemn vow we take in marriage, expecting we'll live happily ever after with our betrothed, we ought to be adding that to our mortgage contracts too.
Perhaps instead of getting married to our significant other, we ought to be getting married to our mortgages. In fact, we should be getting the biggest mortgage possible for as long as possible -- and never ever think of paying it off. There are a lot of very good reasons why you might want to stay with your mortgage longer than you stay with your spouse.
According to the U.S. Census Bureau, 10% of all marriages end in divorce by the fifth year and another 10% end by the 10th year. Only by the 18th year of marriage, though, do we hit the 30% divorce rate, and it's not until the 50th year of marriage do we get to the 40% rate of separation.
Well, mortgages, then, are a lot like marriage. The longer you're in them, the better off you are.
Consider these reasons for getting married to your mortgage:
- Mortgages are cheap. In fact, it's some of the cheapest money you can borrow. At around 6.3%, a mortgage is less than half of the 13.4% rate that a standard fixed-rate credit card is charging, according to Bankrate.com. Why charge on your credit card when you can borrow mortgage money at half the rate?
- Mortgages are tax deductible. Unlike credit card and other forms of debt with their higher rates of interest, mortgage debt is still tax deductible. If you're in the highest federal tax bracket of 35%, that means that a 6% mortgage is really only costing you around 4% since the federal government sponsors more than a third of it.
- You can earn interest. Instead of getting a 15-year loan or enrolling in a biweekly payment plan, invest that extra money to make money for yourself. That extra $500 you'd be sending to the mortgage company -- to pay off that cheap 6% mortgage early -- could be earning you 10% if it was invested in the stock market. Invest that $500 a month in a broad market index fund earning its 80-year historical average of 10% a year, and you'd have more than $1.1 million at the end of 30 years.
- Mortgages get cheaper over time. My mom bought a house in 1970 for $17,000. After putting 20% down and getting a 30-year fixed rate mortgage at 8.5% interest, her monthly payments were a whopping $105. I ask you, who wouldn't beg, borrow, and steal for a $105 monthly mortgage payment today? And that's the beauty of mortgages: They stay the same amount over their life regardless of how times change. And it's pretty certain that your income will change, too, over the life of the mortgage, undoubtedly growing in size. What once comprised 30% of your salary when you got the mortgage will probably be a much smaller percentage at the end.
- Your home will still appreciate. Regardless of whether you pay off your mortgage early or you get a gigunda mortgage for as long as you can and never pay it off, the value will appreciate over time. However, by not paying it off early, you have had the use of that extra cash over the years that you've owned it. When the time comes that you want to sell your home, you still benefit from the appreciation that it has accrued. My mom's home eventually sold for more than 14 times her purchase price. During the years that she dutifully made her $105 monthly payments, she was able to use her money for other things.
Having your money tied up in your house -- which is what you're doing when you pay your mortgage off early -- is even worse than putting it in your mattress. When it's in the house, you may find yourself in dire financial straits if calamity should strike. If you lose your job, become sick or injured and can't work, or retire, you won't be able to borrow money on all that equity you've created by paying it off early. At least if it's in the mattress you can get to it.
By using the value of your house to your advantage, however -- by taking the biggest mortgage for as long as possible and never paying it off -- you will actually improve your financial wherewithal in the event you need money for whatever catastrophic situation may befall you.
Of course, you can't live under a mountain of mortgage debt and then go out and charge up your credit cards after the fact. And don't take that money and spend it on frivolous things either. That's not smart financial planning. That's living dangerously and foolishly, something Fools would never recommend.
So as much as we may love our significant other and want to spend eternity with them, consider marrying your mortgage for just as long ... if not longer.
Bankrate is aRule Breakers recommendation.