[ralph84]

It absolutely is savings. Compare two people:

Person #1 - Makes $6000/month

- Has an interest-only mortgage payment of $1000/month (yes it's still possible to get interest-only mortgages)

- All other expenses are $4000/month

- Puts $1000/month in a savings account

Person #2 - Makes $6000/month

- Has a mortgage payment of $1000 interest + $1000 principal = $2000/month

- All other expenses are $4000/month

Person #1 and #2 are saving the exact same amount of money. Over time if nothing changes Person #2 will actually be saving more, because the interest portion of the mortgage payment will decrease and the principal portion will increase.

[bluGill]

This isn't right. Over time Person #1 should have more savings. Loan interest rates are very low, person #1 shouldn't be putting the money into a savings account, he should be using a better investment. Person #2 is now forgoing the higher return of stocks to pay off the mortgage.

It gets worse for person #2. The house is probably changing in value. If the house goes up in value person #1 is ahead because that money is all his, on the $10k investment, person #2 has a much larger investment to get the same return. If the house goes down person #1 has at most $10k to lose, while person #2 can lose the entire value he has paid in so far.

Of course eventually person #2 has the house paid off and has $2000 to work with.

[ralph84]

What does any of what you wrote have to do with whether or not it's savings. You're just saying you think some forms of savings are better than others.

[bluGill]

I'm responding to the last sentience where you says person #2 was better because he was paying off the mortgage.

[ralph84]

I didn't say #2 was better, I said he was saving more. It's certainly possible to design any number of scenarios where someone who saves more ends up with less in the end.

[dagw]

The caviates here are a finite time horizon, whether or not you ever plan on selling your house and whether or not you care about what sort of inheritance you want to leave. If person #1 and #2 both live in their houses until they die and don't have anybody they want to leave their money to then it depends on how many years there are between #2 pays off his loan and when he dies (since from your perspective all your loans are cancelled when you die)

[imtringued]

They still benefit from fixed prices while rent can keep going up.

[IanCal]

I think people are really missing their point.

You show the change in net worth, but they're saying that they see savings as different and I get what they mean.

Person 2 in your example has the same net worth but not the same access to the money. If a sudden bill comes in then being $2k lower in my debt vs $2k in a savings account are functionally very different.

That's not to say one is right or wrong, but they are different.

[shiftpgdn]

Can you give more details on the interest only mortgages? I haven't seen that offered anywhere.

[ralph84]

You need a portfolio lender since the GSEs won't buy an interest-only mortgage. Union Bank, Navy Federal, and SoFi are some examples.

[MuffinFlavored]

> interest-only mortgage

Why would anybody ever do this?

[dagw]

If your interest is 2% and you believe you can get 4% from some other investment, then some people might ask themselves why 'invest' in paying off your mortgage?