May 30, 2007, 4:02 am

Is Your Mortgage a Bad Debt?

by: The Financial Blogger    Category: Assets and Net Worth
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Oh boy, I’ve had this conversation over and over with my parents about their house being an asset. But before going on that route and walk on pins and needles, I would like to talk about the mortgage related to your main residence. Is it a good or a bad debt?


A mortgage can be a bad debt for several reasons. In fact, on top of paying your mortgage payment and interest, your property will require additional monthly payments. You will have to cover the electricity bills, heating fees, municipal and school taxes and so on. In addition to all that, you will have to invest in your property in order to make some renovations and maintenance repairs.


The property linked to your mortgage doesn’t produce revenue as well. Unless you are renting your basement as a bachelor, there is no source of income from your house. Therefore, you can expect a positive return on a long term basis.


Finally, no interest on your mortgage is tax deductible for Canadian residents. You are paying this debt with after tax dollar. You have then a huge amount of interest paid year after year and you can’t do anything about it.


You might be discouraged at looking at all the reasons why your mortgage is a bad debt. However, I got good news for you. Unfortunately, you’ll have to wait for the next post to find out. See ya!

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The property attached to your mortgage does produce revenue…it’s the money you would be otherwise paying in rent. If it would cost $1500/month to rent your house then that is tax-free income for the homeowner.

Hi Four Pillars,
It is an interesting way of seeing things. However, the property doesn’t produce cash flow, only “virtual income”.