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Collectively, Americans owe a lot of money. In fact, according to recent research by The Ascent, total family debt in the third quarter of 2020 it was $ 14.35 trillion. While this number is really high, there was good news in the data about what Americans owe. The investigation revealed that $ 9.86 trillion of the amount owed is mortgage debt.
Why is it good that Americans owe so much on their home loans?
The $ 9.86 trillion Americans who owe on their mortgages It far exceeds the amount you owe on other types of debt. In fact, the type of debt with the next highest balance, auto loans, totals just $ 1.36 trillion in total. And Americans collectively owe just $ 807 billion on credit cards, which is much lower than the balance owed on mortgages, though still too high given how expensive credit card debt can be.
The fact that mortgage debt accounts for the majority of Americans’ total collective debt is great news for several reasons.
First of all, it means that many people own their houses (or at least part of their houses, and the bank owns the rest). That’s a very positive sign, as home ownership is one of the best ways to build wealth over time. In fact, the ability to build wealth through home ownership is one of the key reasons homeowners have a much higher average net worth than renters.
See, as you pay off your mortgage and property values increase, the value of your real estate should increase. Over time, you will pay off your loan and end up with an asset that is hopefully worth a lot of money. You can then choose to sell the property down to a smaller house that you can pay for in cash, possibly even with some money left over. Or you can stay in your paid home and not have to worry about paying expensive housing costs as a retiree.
There is also another reason why it is a good thing that your mortgage debt balances are much higher than your other debt balances. Mortgages generally have a very low interest rate and interest is tax deductible for those who itemize. Those two facts make total interest costs much lower than other types of debt, which means that these loans are more affordable to repay.
Because a mortgage is an affordable way to borrow an asset that can help you build wealth, it is generally considered a type of “good debt. “That is in contrast to” bad debt, “such as credit cards or payday loans, which are expensive and generally used to buy goods or services that lose value rather than appreciate over time.
Now, that is not to say that taking out a mortgage works well for all Americans. Some people borrow more than they should and end up living in poverty, with their monthly mortgage payment compromising other important ones. financial goals. Others end up facing mortgage’s trial because they suffer a job loss or income cut and do not have a sufficient emergency fund to ensure that their mortgage bills are paid until they recover.
But for the most part, if you’re financially ready to own, qualify for an affordable home loan, and buy a home that fits your budget, this is a type of debt you won’t end up regretting.