Payable Unto Death: Halloween Etymology

All Hallows Eve is an unofficial kickoff to the Fall holiday season, and one of the more ghoulish refrains I have heard this season is from financial advisers. Their endless refrain is that mortgages are bad, and if you have a mortgage, you should pay it off. Their endless cacophony is like the wail of a Banshee, or the howling of a wolf:  “All debt is bad. It is ungodly to have debt.” It sounds as if they are trying to scare children or to manipulate their clients through fear. Obviously, they have never considered the needs of a business owner.

I would like to begin this posting with a little etymology. Mortgage, like many of the words we use in finance, is from the French language. And yes, its root meaning will bring a chill to your bones: mortgage means payable unto death.  The presumption is that the borrower will be servicing the debt until they die.

Thankfully, this is not the case for the majority of Americans. Most home buyers do not keep their home until death; rather they hold their home for 11 years and then sell it. In addition, in today’s interest rate environment, the mortgage payment, real estate commissions and closing costs, are less than the rent for a comparable property. Have you ever wondered why there are so many landlords?

Many financial advisers encourage homeowners to accelerate their mortgage repayment. They offer this advice off the cuff and without serious consideration of the facts at hand. In a study by the National Bureau of Economic Research, researchers compared paying down a mortgage, or increasing savings into a tax-deferred account, with surplus income. The result was that 38% of the time directing the surplus into the tax deferred account was economically more beneficial.

Mortgages are not the monster under the bed or the one hiding in the closet. They are a useful tool which benefits the homeowner as well as the economy. Paying a mortgage down early is a decision which must be considered in light of each client’s individual facts and circumstances. And contrary to popular opinion, paying a mortgage off early is not the key to financial success.

During November, I will be blogging about Patient Protection and Affordable Care Act. The postings will supplement my presentations at the 2013 Georgia Tax Forum sponsored by the Georgia Society of CPAs: Please join me at the conference for the Affordable Care Act: Tax, Business and Insurance Update.


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