Gaining the proper mind-set starts with asking two questions: Why do I have mortgage debt? And How is mortgage debt different from any other type of debt?

Why do I have mortgage debt?

Here are some good reasons to incur mortgage debt:

• I don’t’ have the cash to buy a home outright.
• I can afford to buy, so I’d rather own than rent because my payments remain fixed while rents increase over time.
• Mortgage interest is tax deductible, therefore further reducing the cost of my fixed payments versus renting.
• I’m using mortgage debt to purchase a long-term asset – my home, which will appreciate in value in the long run.
• If interest rates decline, I can further reduce the cost of owning my home by refinancing into a new fixed-rate mortgage and dumping the difference in the payment right back into paying down my debt.
• Over time, my fixed payment will become a smaller and smaller part of my monthly expenses, creating more and more room to invest in my family’s future and easing the pressure on my monthly finances.
• As I reduced the cost of my mortgage debt, I create additional margin between the cost of that debt and the long-term rates of return for my investments (my 401(K), college savings plans, and so on. This further enhances the return on the first 10 percent of income I must save, since my savings are essentially financed by my mortgage debt.

How is mortgage debt different from any other type of debt?

Mortgage debt finances on asset that will appreciate in the long run at a rate that exceeds the cost of the debt. That seems hard to believe given the housing crisis, but it’s true – assuming you don’t buy too much home, stick with fixed-rate financing, and avoid getting in over your head. The housing crisis is a once-in-a-lifetime event, and it does not invalidate the benefits of owning a home.

Take a look at the rest of your debts. Do they enhance your future wealth prospects? There isn’t a good reason to incur any debts other than a mortgage, a car loan (because you need a car to get to work), a student loan, or a loan to fund a dire emergency (such as a health issue). Consumer debt always detracts from wealth. To the extent you use it, you are upside down from day one. If you refinance your mortgage and take cash out to tap your home equity, you’ve created consumer debt. It’s disguised as mortgage debt, but is character has not changed.

Minding Your Mortgage

Minding your mortgage debt means that you actively manage it. It means you are committed to minimizing the amount of mortgage debt you take on and consistently working to eliminate it.

There are three principles to employ that will help you accomplish this goal:

1. Own your home; don’t let it own you.
2. Convert your monthly spending into wealth.
3. Deploy a sound refinance strategy.

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