Do you consider mortgage payments as savings?

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LateStarter1975
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Do you consider mortgage payments as savings?

Post by LateStarter1975 » Sat Feb 28, 2015 3:17 am

Some personal finance bloggers often include their mortgage payments as part of their overall savings. Their reasoning is that as they pay down the mortgage, they built equity in the home and this adds to the net worth. So they include these payments as part of their after-tax savings. It's more for those who track their savings and have targets or goals (like saving >50% of net income every month). I've always been ambivalent about this idea and wonder what bogleheads think about this. To me it's just like paying down debt, which I wouldn't necessarily include as part of savings though it helps to increase your net worth. Or maybe I'm just wrong on this. So, would you include your mortgage payments as part of your overall after-tax savings?
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Ketawa
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Re: Do you consider mortgage payments as savings?

Post by Ketawa » Sat Feb 28, 2015 3:23 am

It doesn't matter what I consider them. All that matters is the bottom line. Rules like saving 50% of net income are arbitrary.

heikejohn1
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Re: Do you consider mortgage payments as savings?

Post by heikejohn1 » Sat Feb 28, 2015 5:29 am

I might include the part that is above the actual mortgage payment. (Extra equity)
Otherwise, in my opinion, normal mortgage payment is an expense.

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just frank
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Re: Do you consider mortgage payments as savings?

Post by just frank » Sat Feb 28, 2015 5:30 am

If you were paying off credit card debt, and you knew you would just run up more debt, then paying it off does not really increase your net worth.

If after paying off your first house, you are just going to buy another, then the same applies. :D Otherwise the principal payment counts as savings.

LateStarter1975
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Re: Do you consider mortgage payments as savings?

Post by LateStarter1975 » Sat Feb 28, 2015 5:46 am

heikejohn1 wrote:I might include the part that is above the actual mortgage payment. (Extra equity)
Otherwise, in my opinion, normal mortgage payment is an expense.


This makes better sense to me.
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avenger
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Re: Do you consider mortgage payments as savings?

Post by avenger » Sat Feb 28, 2015 5:54 am

It's not saving.

It's paying for something you already bought.
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German Expat
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Re: Do you consider mortgage payments as savings?

Post by German Expat » Sat Feb 28, 2015 6:35 am

We never considered it for our savings because we planned to own our house free and clear way before retirement.

An interesting twist now though is that we are currently renters (in Switzerland) and I subtract our (former) home equity from our assets to get our net assets to get an apples to apples comparison to last year. So if we keep renting forever then we will need to consider higher withdrawals for our retirement and it should all more or less wash out.

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Re: Do you consider mortgage payments as savings?

Post by rkhusky » Sat Feb 28, 2015 6:37 am

The interest part of the payment is an expense. The principal part of the payment is an investment, which you can tap via sale, re-mortgage or home equity loan. It is less liquid than some investments, more liquid than others. Savings accounts are often considered a very liquid investment.

LateStarter1975
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Re: Do you consider mortgage payments as savings?

Post by LateStarter1975 » Sat Feb 28, 2015 6:50 am

rkhusky wrote:The interest part of the payment is an expense. The principal part of the payment is an investment, which you can tap via sale, re-mortgage or home equity loan. It is less liquid than some investments, more liquid than others. Savings accounts are often considered a very liquid investment.


But if you intend to live in that home forever, that principal payment is not really savings because you you're not planning on selling the home. And if you do tap a home equity loan, you will have to repay it to the bank...with interest.
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LateStarter1975
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Re: Do you consider mortgage payments as savings?

Post by LateStarter1975 » Sat Feb 28, 2015 6:51 am

German Expat wrote:We never considered it for our savings because we planned to own our house free and clear way before retirement.

An interesting twist now though is that we are currently renters (in Switzerland) and I subtract our (former) home equity from our assets to get our net assets to get an apples to apples comparison to last year. So if we keep renting forever then we will need to consider higher withdrawals for our retirement and it should all more or less wash out.


That's a nice perspective there
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ks289
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Re: Do you consider mortgage payments as savings?

Post by ks289 » Sat Feb 28, 2015 7:11 am

LateStarter1975 wrote:
rkhusky wrote:The interest part of the payment is an expense. The principal part of the payment is an investment, which you can tap via sale, re-mortgage or home equity loan. It is less liquid than some investments, more liquid than others. Savings accounts are often considered a very liquid investment.


But if you intend to live in that home forever, that principal payment is not really savings because you you're not planning on selling the home. And if you do tap a home equity loan, you will have to repay it to the bank...with interest.


The issues regarding how difficult it can be to access the equity argue that paying additional principal may not always be the best choice for savings or investment. However, the fact remains that your positive cash flow has been used directly to add to your net worth with the yield of less interest paid.

If you never move in your lifetime, then the equity will be passed on to your heirs as any other asset you have acquired through saving.

Dandy
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Re: Do you consider mortgage payments as savings?

Post by Dandy » Sat Feb 28, 2015 7:37 am

No. you can't spend your mortgage payments that you have made. Yes a portion of your payment goes to principal reduction but initially that is a very small portion of your mortgage payment. Do you offset these "savings" with home related taxes, insurance, maintenance?

Why play games with re labeling payments as savings or income streams as assets? If you are paying down a mortgage that is usually a good thing.

DonDraper
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Re: Do you consider mortgage payments as savings?

Post by DonDraper » Sat Feb 28, 2015 7:47 am

Yes I do consider the portion that goes towards paying down the principal to be savings.

Let's say you had $100k in after tax income. You spent $30 on living expenses and put $70k in the bank. On December 31st you took that $70k out of the bank and paid off your mortgage. I consider that to be $70k worth of savings for the year and your net worth would reflect it.

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Re: Do you consider mortgage payments as savings?

Post by angelescrest » Sat Feb 28, 2015 8:01 am

Some good points made. But to be specific, no, I do not consider it savings, I consider it equity. However, that does not mean it isn't valuable and essentially helps like another investment.

Regardless of whether or not I ever sell the paid off house, the money is still working for me much like a big wad of cash in retirement and covering my rent. If I didn't have that, my expenses would be much higher. If I had $300k of savings in the bank, and the 3% withdrawal every year was intended to cover my rent, it would be operating very similarly. Since I need the rent money, I couldn't exactly get rid of that $300k, and if I used some of it, I would need to "repay" it to get back to the amount needed to cover my rent. And if I so chose, I could convert it to cash.

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Re: Do you consider mortgage payments as savings?

Post by Miguelito » Sat Feb 28, 2015 8:10 am

I consider it savings to the extent that it increases my net worth and the fact that, admittedly, I could downsize to something costing half as much if I really had to. If you owned a house that just met your needs you couldn't properly call it savings because you still need somewhere to live.

Not implying cars are an investment or savings, but as an example, if you own a car worth $40k free and clear (forget depreciation for a moment), if push comes to shove and you need the money, you trade it in and buy a $10k car and pocket the difference. If you drive a 12-yo, 160k mile Civic free and clear, that is not savings at all. You can't use any of that equity.

Sure, houses are not liquid, but they are a big investment and are part of your net worth. To us, our house (on track to be paid off before retirement), is our insurance/inheritance for the kids. It's a nice home and we have no plans to use the equity to fund retirement. But if s*** hits the fan, there will be a lot of equity there. Similarly, we don't expect to exhaust our retirement (who wants to cut it that close?), so ideally our two kids will get to split the proceeds from that house which will give each a few hundred k to fund their retirement, send kids to college, etc.
Last edited by Miguelito on Sat Feb 28, 2015 10:44 am, edited 1 time in total.

Qprkid
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Re: Do you consider mortgage payments as savings?

Post by Qprkid » Sat Feb 28, 2015 8:22 am

Yes.

Every payment you make adds to to your Net Worth.

And you HAVE to make the payments.

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Go Blue 99
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Re: Do you consider mortgage payments as savings?

Post by Go Blue 99 » Sat Feb 28, 2015 8:30 am

When I calculate our savings rate, I only include extra mortgage payments.

retiredjg
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Re: Do you consider mortgage payments as savings?

Post by retiredjg » Sat Feb 28, 2015 8:35 am

I just consider it a mortgage payment.

If the point of calling it savings is to figure out your net worth, what do you then do with that information? This is just not something I need to measure.

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Cosmo
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Re: Do you consider mortgage payments as savings?

Post by Cosmo » Sat Feb 28, 2015 8:35 am

Interesting thread here. Bottom line: this changes your bottom line. With each mortgage payment as your principle gets paid off, your NET WORTH increases by the same amount. So as with saving and investing, it is just another way to increase your net worth.
Cosmo

Ron Ronnerson
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Re: Do you consider mortgage payments as savings?

Post by Ron Ronnerson » Sat Feb 28, 2015 8:38 am

I would include principal as savings since it adds to net worth if I calculated my savings rate.

Bacchus01
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Re: Do you consider mortgage payments as savings?

Post by Bacchus01 » Sat Feb 28, 2015 8:48 am

Do I consider it "savings"? No. Do I consider it as growing net worth? Absolutely.

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Re: Do you consider mortgage payments as savings?

Post by JoeJohnson » Sat Feb 28, 2015 9:02 am

Cosmo wrote:Interesting thread here. Bottom line: this changes your bottom line. With each mortgage payment as your principle gets paid off, your NET WORTH increases by the same amount. So as with saving and investing, it is just another way to increase your net worth.
Cosmo


On the other hand, each time you buy/sell a house there are huge costs associated with the transaction that eat at that bottom line significantly. A year in which you sell your house, would you count that as negative savings?

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Re: Do you consider mortgage payments as savings?

Post by minesweeper » Sat Feb 28, 2015 9:18 am

I count whatever goes towards principal as savings.

stan1
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Re: Do you consider mortgage payments as savings?

Post by stan1 » Sat Feb 28, 2015 9:24 am

When I had a mortgage I considered extra payments as savings (since I would have invested that amount in a taxable account had I not put it against the mortgage). Do whatever you want -- just be honest with yourself. Often when people start getting creative with their savings rate/net worth accounting methods there seems to be a desire to simply see a larger number. Trying to meet an arbitrary metric so you can tell yourself you are saving 1/3 or 1/2 of your income in meaningless. Certainly you would never be telling anyone else other than your spouse how much you are saving!

jackholloway
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Re: Do you consider mortgage payments as savings?

Post by jackholloway » Sat Feb 28, 2015 10:24 am

A payment the rough size of my rent or mortgage is just an expense.

Extra principle payments count as savings, because they are reflected in my net worth spreadsheet. They are not retirement or investment savings, because I am not planning on retiring until the house is pad off and college is done.

toto238
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Re: Do you consider mortgage payments as savings?

Post by toto238 » Sat Feb 28, 2015 10:31 am

I consider any payment towards principal (even if it's part of the minimum payment for the mortgage) to be savings. That being said, especially at the beginning of a mortgage, it's a highly leveraged investment that can lose all of its value very quickly, as many homeowners learned in 2008.

Payment towards interest is an expense.

And no, I don't consider "staying in the house forever" to be an excuse to ignore this savings. Even if you live in the house forever, you can still access that equity through, for example, a reverse mortgage (NOTE: I do not necessarily recommend a reverse mortgage).

It is absolutely a part of your overall net worth. Every time you make a payment against principal, your total debt just decreased. Your net worth is total assets - total debt. So if total debt decreased, all else remaining equal, your net worth has changed. You should absolutely count that.

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Re: Do you consider mortgage payments as savings?

Post by cherijoh » Sat Feb 28, 2015 10:32 am

Home Equity is an asset. Savings are also an asset. But your mortgage payment - even extra principal payments - is not savings.

I like this definition for "save" from dictionary.com:
to lay up money as the result of economy or thrift

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Re: Do you consider mortgage payments as savings?

Post by jstrazzere » Sat Feb 28, 2015 10:42 am

avenger wrote:It's not saving.

It's paying for something you already bought.


This.

Mortgage payments are not the same as savings.
Anticipated equity may never materialize.
Housing prices may or may not go up.
Houses are not as liquid as real savings.

dbr
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Re: Do you consider mortgage payments as savings?

Post by dbr » Sat Feb 28, 2015 10:45 am

I think people are confusing net worth with all kinds of rationalizations about what assets comprise that net worth.

Diverting income from consumption to increasing net worth is saving by definition.

As always the ultimate answer depends on what purpose one has in mind in tracking the data.

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Re: Do you consider mortgage payments as savings?

Post by rkhusky » Sat Feb 28, 2015 10:52 am

Is a brick of gold savings? Is a painting by Monet savings? Is a parcel of timberland savings?

How about if you had to get a loan to purchase one of these? Would payment on principal be considered savings?

If you think of the your house as being partly owned by you and partly by the bank, with each payment on principal you are buying another small piece of your house.

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Re: Do you consider mortgage payments as savings?

Post by Carefreeap » Sat Feb 28, 2015 10:58 am

Bacchus01 wrote:Do I consider it "savings"? No. Do I consider it as growing net worth? Absolutely.


+1

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Watty
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Re: Do you consider mortgage payments as savings?

Post by Watty » Sat Feb 28, 2015 11:16 am

It really depends on what you are using the "savings" number for.

The prior post about just considering any payments above your mortgage payments as savings has a problem since two people with identical houses might have a 15 and 30 year mortgage. If the person with the 30 year mortgage pays additional principal each month then they are really not saving any more than the person with the 15 year mortgage.

That said you could use the formula

Income - expenses = savings

where the mortgage interest is an expense the part that pays down the principal is not. The depreciation of the house would also have to be included as an expense since every year part of the useful life of things like your roof and furnace is used up.

The savings along with any change in value of your investments and assets(including the house) would determine the change in your net worth for the year.

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Re: Do you consider mortgage payments as savings?

Post by Kevin M » Sat Feb 28, 2015 11:32 am

You can call it what you want, but the principal portion of the mortgage payment is increasing your equity share in a risky asset, and interest portion is an expense to service debt. Them's just the facts. A house is a less liquid asset than say a stock fund, but it is an asset.

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toto238
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Re: Do you consider mortgage payments as savings?

Post by toto238 » Sat Feb 28, 2015 11:45 am

rkhusky wrote:Is a brick of gold savings? Is a painting by Monet savings? Is a parcel of timberland savings?

How about if you had to get a loan to purchase one of these? Would payment on principal be considered savings?

If you think of the your house as being partly owned by you and partly by the bank, with each payment on principal you are buying another small piece of your house.


I think too many people "think of their house" as something other than what it is.

You are the full owner of your house once you purchase it. You also owe the bank a mortgage. The fact that the bank can foreclose on your house if you go through bankruptcy is irrelevant unless you're planning on going through bankruptcy.

The value of the house is an asset.

The mortgage is a liability.

Net worth is assets - liability.

Every mortgage payment you make decreases your total liabilities by paying down principal.

I don't need to "think of the mortgage" as anything besides what it literally is.

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N1CKV
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Re: Do you consider mortgage payments as savings?

Post by N1CKV » Sat Feb 28, 2015 11:48 am

if you consider it savings because it increases net worth you are wrong. You did not increase net worth by making the payment. You used cash from your net worth to decrease a liability. It's neutral to net worth. It's merely an exchange of asset type.

edit: post above me beat to it
I have met a lot of people that claim to love money, but they also seem to be the same people that are in the biggest hurry to get rid of it.

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Re: Do you consider mortgage payments as savings?

Post by dbr » Sat Feb 28, 2015 11:57 am

N1CKV wrote:if you consider it savings because it increases net worth you are wrong. You did not increase net worth by making the payment. You used cash from your net worth to decrease a liability. It's neutral to net worth. It's merely an exchange of asset type.

edit: post above me beat to it


Yes, I was after the same idea in my post but didn't phrase it very well.

However, if the choice is between making that payment and spending the money instead then it is savings, but the operational part is in the not spending rather than on what asset eventually receives the money.

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Re: Do you consider mortgage payments as savings?

Post by Johno » Sat Feb 28, 2015 12:18 pm

N1CKV wrote:if you consider it savings because it increases net worth you are wrong. You did not increase net worth by making the payment. You used cash from your net worth to decrease a liability. It's neutral to net worth. It's merely an exchange of asset type.

edit: post above me beat to it

Both posts miss the actual point though. You can argue that decision to use money you've already saved in a bank account to pay down a mortgage isn't saving, but rather the initial act of putting/keeping it in the bank account (rather than spending it on consumption items) was the act of saving. But the same exact thing is true of buying mutual fund shares with money you already saved in a bank account, and nobody ever starts poll threads about whether buying mutual fund shares (without borrowing) is saving or not. In that case everyone seems to understand that the point in question is whether you temporarily park money in a bank account in order to soon use it to buy an investment, or in order to soon use it on consumption items. Both the mortgage pay down and mutual fund buy cases are putting the money in the bank account in order to buy investments.

So as was said above no matter how you 'like to think about it', a house is in fact an investment*, and paying down a liability against that investment is in fact savings, in the same sense as buying mutual fund shares is saving. And it's confused to focus on an initial act of directing an income stream to a bank account temporarily when the key issue is whether you then use the bank account to pay down debt, acquire non-cash assets, or keep the money invested in cash long term (all three being basically the same thing, savings) or spend it on consumption (a different thing basically).

*with the usual caveat at the extreme. A very flimsy modern house in an area of very cheap land and no restrictions on further development might (including the cost of demolition) depreciate to net ~zero value soon enough to have a reasonable argument that the whole thing is a consumption item. OTOH my house is over 100 years old and no reason to think it won't be standing in another 100yrs if it doesn't burn, and the land is probably more valuable than the house. So it's simply nonsense to say my house 'isn't an asset'. And it's nonsense for most houses even if somewhere in the middle. But there's no law saying people can't come up with non-factual 'I like to think of it as...' ideas for houses or anything else. :D
Last edited by Johno on Sat Feb 28, 2015 12:23 pm, edited 1 time in total.

Twins Fan
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Re: Do you consider mortgage payments as savings?

Post by Twins Fan » Sat Feb 28, 2015 12:22 pm

Short answer.... no, I don't call it savings.

If I had enough money to just pay cash for my house when I got and did so, did I just save all that money or did I buy something for an agreed upon price?

Since many folks don't have the cash on hand to buy a home outright, they take out a mortgage to borrow money and pay that agreed upon price. They then pay that back to the lender over time. It's almost a reverse savings in a way though. Instead of saving now for later consumption, you consume (buy house) now and save over time or pay back later. With interest, of course.

Hmm, I guess I can twist my brain a bit to see how it could be savings. :happy But, I still don't think I can call the monthly payment savings.

edit - whoops, meant to say lender
Last edited by Twins Fan on Sat Feb 28, 2015 12:34 pm, edited 1 time in total.

alex_686
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Re: Do you consider mortgage payments as savings?

Post by alex_686 » Sat Feb 28, 2015 12:26 pm

N1CKV wrote:if you consider it savings because it increases net worth you are wrong. You did not increase net worth by making the payment. You used cash from your net worth to decrease a liability. It's neutral to net worth. It's merely an exchange of asset type.


While you are technically correct, I am going to have to disagree with you.

The thing about mortgage payments is that force you to make a principle payment (a.k.a. The savings payment) each month. It provides discipline for those who lack it.

As an aside for the rest of the thread, your home's equity is a asset. If you plan on living in it until your dead your home's equity is still a asset. Homes are a weird asset class. People tend to have emotional and psychological issues surrounding their home leading to cognitive basis. People's home tend to be too high of a percentage of their assets. But it is still a asset and asset class.

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Re: Do you consider mortgage payments as savings?

Post by moghopper » Sat Feb 28, 2015 12:29 pm

LateStarter1975 wrote:
rkhusky wrote:The interest part of the payment is an expense. The principal part of the payment is an investment, which you can tap via sale, re-mortgage or home equity loan. It is less liquid than some investments, more liquid than others. Savings accounts are often considered a very liquid investment.


But if you intend to live in that home forever, that principal payment is not really savings because you you're not planning on selling the home. And if you do tap a home equity loan, you will have to repay it to the bank...with interest.



If I "save" to a Roth that I never intend spending - then is that not really "savings" because I'm not planning on selling any of the Mutual funds in it?

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Re: Do you consider mortgage payments as savings?

Post by hoops777 » Sat Feb 28, 2015 12:56 pm

It is not savings.You are simply increasing your net worth or decreasing it depending upon the flucuations of the housing market.If your house is worth 500,000 today and you make 12 payments this year totaling $30,000 and the housing market tanks in 2016,maybe your house is now worth $400,000.Savings?
K.I.S.S........so easy to say so difficult to do.

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Re: Do you consider mortgage payments as savings?

Post by Independent » Sat Feb 28, 2015 12:57 pm

Ketawa wrote:It doesn't matter what I consider them. All that matters is the bottom line. Rules like saving 50% of net income are arbitrary.

+1

I plan to live in this house, or something similar, indefinitely.
So, in my financial planning, mortgage principal and interest is just an expense that will go away some day.

toto238
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Re: Do you consider mortgage payments as savings?

Post by toto238 » Sat Feb 28, 2015 1:08 pm

hoops777 wrote:It is not savings.You are simply increasing your net worth or decreasing it depending upon the flucuations of the housing market.If your house is worth 500,000 today and you make 12 payments this year totaling $30,000 and the housing market tanks in 2016,maybe your house is now worth $400,000.Savings?


You're conflating two different ideas that you shouldn't be. The idea of the investment "return" vs the act of saving. If you put money into a Roth IRA, but lose it all on a bet on a penny stock, you still saved money. You just lost your savings in a bad investment. In the same way, if you purchase an asset like a house and it tanks in value, you still saved money. You just lost the money you saved.

The act of consumption was when you bought the house, and in that year you either borrowed to pay for that purchase or bought the home outright with cash. As soon as you buy it, you now have an asset, worth whatever it is worth (whatever the market will bear in my opinion). If you borrowed to buy it, you now also have a liability. That liability (the mortgage) may or may not be more or less than the value of your home in the future. Whether it is or not is completely irrelevant to the nature of what your mortgage payments are. Payments towards principal on your mortgage are reducing a liability.

Before paying that mortgage, that money was sitting in your bank account, clearly an asset. Then you used it to reduce a liability. Your total net worth before was:

All assets - all liabilities

Now afterwards, your total net worth is:

(All Assets - total mortgage payment) - (All liabilities - reduced principal amount of the mortgage)

The portion of the mortgage payment that went to interest is an expense because it's gone forever. It did not reduce any liability and did not add to any other asset anywhere else. You will never get it back. The portion of the mortgage payment that went to the principal of the mortgage decreased a liability. You now owe less money than you used to. That is worth something.

I think the problem a lot of people have is that they only view their mortgage as a legitimate debt if their home is "above-water". If their home is "underwater" they suddenly don't think they owe that money anymore. If that's how you think, then sure you can think of your mortgage payment however you want. It's all mental and psychological at that point. Heck, if that's your thinking, you should get a mortgage that minimizes payments as much as possible and borrow as much as you possibly can. That maximizes the chance of the home going underwater, but also maximizes the return you can get if it goes up in value. If it goes underwater you're just going to walk away anyway, if it goes up, you can sell it for a huge profit.

I don't view a debt that way. A debt is a debt, and I intend on repaying every penny I borrow with interest, as long as I possibly can. That's how I was raised.

toto238
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Re: Do you consider mortgage payments as savings?

Post by toto238 » Sat Feb 28, 2015 1:13 pm

The other (in my humble opinion) illogical behavior I've seen is people treating it as an expense to try to be more "conservative". They see it as an expense because they don't see their home as an asset. But your home is an asset. Unless it gets destroyed, it's worth something. Heck, even if it is destroyed, the land it's one is worth something to someone. And even if you plan on living in it forever, you can sign up for a reverse mortgage to access that home equity. Not that I recommend that. But you have the ability to do so.

Maybe you're planning on passing the house on to your kids after you pass. Well then you should treat it as an asset that you will be passing onto your kids. It's still an asset. It's just not for you. It's for your kids.

So yes, a home is absolutely an asset.

Now whether it's an "investment" or more specifically a "good investment" is a matter of opinion. But you can't logically argue that a house isn't an asset.

I fully recognize that the house is an asset, and that the mortgage is a debt. I don't need to think of it as something else in order to convince myself to save more for my retirement. I will save a conservative amount for retirement no matter what. I don't need to play mind games with myself to justify it.

JoeJohnson
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Re: Do you consider mortgage payments as savings?

Post by JoeJohnson » Sat Feb 28, 2015 1:15 pm

A car is an "asset" and nobody here is going to claim that they are savings. To me, savings is monthly inflow - monthly outflow. Your savings increase dramatically once the house is paid off.

toto238
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Re: Do you consider mortgage payments as savings?

Post by toto238 » Sat Feb 28, 2015 1:18 pm

JoeJohnson wrote:A car is an "asset" and nobody here is going to claim that they are savings. To me, savings is monthly inflow - monthly outflow. Your savings increase dramatically once the house is paid off.


When I pay money towards my car loan's principal, I am reducing a liability. My net worth didn't go down when I make that payment (except for the interest expense). It doesn't matter whether it's a home loan, car loan, piano loan, student loan, credit card debt, whatever.

If you reduce a liability, that is a plus for your net worth. Reducing a debt, because it has interest associated with it, is expected to have a positive return by avoiding more interest.

ks289
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Re: Do you consider mortgage payments as savings?

Post by ks289 » Sat Feb 28, 2015 1:21 pm

N1CKV wrote:if you consider it savings because it increases net worth you are wrong. You did not increase net worth by making the payment. You used cash from your net worth to decrease a liability. It's neutral to net worth. It's merely an exchange of asset type.

edit: post above me beat to it


I think this discussion misses the important point of personal finance goals.
It is perfectly understandable to reserve the term "savings" for liquid vehicles such as bank accounts, stocks, and bonds.
It is perfectly reasonable to use the term debt repayment for any debt/mortgage PREpayment.
In the circumstances we are discussing, the assumption is that in both cases there is positive cash flow - which is really ultimately the important part. One could use the positive cash flow to increase net worth (many choices) or not (go to a movie, get a haircut, go on vacation, light it on fire, etc).
Last edited by ks289 on Sat Feb 28, 2015 1:28 pm, edited 1 time in total.

hoops777
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Re: Do you consider mortgage payments as savings?

Post by hoops777 » Sat Feb 28, 2015 1:21 pm

Well with all due respect when someone says savings I take that as money put into an account that is safe,not something that can lose value like a stock or a house.Maybe I misunderstood his meaning.
K.I.S.S........so easy to say so difficult to do.

Flashes1
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Re: Do you consider mortgage payments as savings?

Post by Flashes1 » Sat Feb 28, 2015 1:22 pm

I don't consider the principle portion of my mortgage payment savings, although I do include the equity in my home as part of my Net Worth.

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vitaflo
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Re: Do you consider mortgage payments as savings?

Post by vitaflo » Sat Feb 28, 2015 1:23 pm

I don't consider non-liquid assets to be savings. Yes, home equity may increase my net worth, but I will always need a home. I won't always need those index funds, and I can get at them very quickly should I need money now. Can't say the same about a house.

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