After repaying student loans, it might be difficult for student debt borrowers to feel comfortable about borrowing money for other purposes later in their lives. Indeed, after repaying student loans, I was debt-free for the first time in my adult life, and the feeling was amazing. However, after some research, I decided to borrow a mortgage in order to buy a home. For a variety of reasons, mortgages are different than student loans, and student debt borrowers should not be afraid to borrow mortgages even if they are debt-averse after repaying student debt.
Perhaps the main way that mortgages are different than student loans is because there is physical collateral associated with the debt in a way not possible with student loans. When you buy a home, even if there is debt associated with the home, you still have physical collateral associated with that debt. Indeed, so long as the home does not depreciate in value, you are never really in debt, since theoretically, you could always sell the home, pay off debt, and pocket the difference.
The benefits of student debt are mostly intangible, because the experiences, education, and other value obtained by student debt is not physical. In addition, there is no collateral that can be exchanged to pay off the debt and make the borrower whole. Although education has value, it is not as liquid as the value of a home, and this is one reason why mortgages are different than student loans.
Mortgages also have different tax benefits than student loans, which makes it more advantageous to borrow this type of debt than other types of loans. Of course, if you make less than a certain salary, you are able to deduct student loan interest from your taxes. However, the threshold above which student loan interest is not deductible is relatively low, so many people cannot take advantage of this tax benefit.
However, mortgage interest on a primary home is usually tax deductible to anyone who itemizes their deductions no matter how much money they make. In addition, mortgage insurance and other similar expenses may also be tax deductible. Furthermore, the property taxes that a homeowner pays on their home may also be tax deductible to a certain extent. Although every borrower should talk with their tax professional about how best to minimize their tax liability, mortgages can have more tax advantages than student debt in numerous instances.
Another way how mortgages are different than student loans is that part of your mortgage payment pays off the principal balance of the debt so that the asset can be sold at a greater profit at a later time. Of course, at the beginning of repaying a mortgage, borrowers are mostly paying for interest that accrues on the debt. However, part of each payment goes to pay down the principal balance itself.
Almost everyone sells their home at some point in their lives. If the principal balance is paid down, then the amount that ends up in your pocket after a sale will increase. Again, since mortgages are collateralized by tangible property, there are more benefits to paying off mortgages than student loans.
Furthermore, mortgages are different than student loans because everyone needs a place to live. Individuals do not necessarily need to earn a degree, and this is even more the case with graduate degrees. However, everyone needs to have a home. Rather than pay rent, which can sometimes be a waste of money, a mortgage offers the benefit of paying for housing costs while investing in something and reaping a number of tax benefits. Of course, there are ways that individuals can minimize their housing costs like living with a roommate, and if you live with relatives, you may be able to avoid housing costs altogether. However, if you choose to have your own home, then a mortgage can be applied to an invaluable thing that everyone needs to have.
In addition, mortgages are different than student loans when calculating your credit score and debt risk. Mortgages are generally thought of as safer debt than student loans because mortgages are attached to tangible collateral unlike student loans. Student loans are usually more difficult to discharge in bankruptcy than other kinds of debt, but for the purpose of calculating your credit score, mortgages can be seen as a sign of financial responsibility and maturity.
Another major way how mortgages are different than student loans is with the interest rates of mortgages. Mortgage rates are at an all-time low, and the interest rates for mortgages are almost half the rates for student loan debt. This ensures that a comparably smaller amount of interest accrues on mortgages than student loans and this is one additional reason why it is far more preferable to have a mortgage that student debt.
Of course, there are certain advantages to having student debt over mortgages. For instance, mortgages are not subject to the kind of income-driven repayment plans that are available to many student debt borrowers. In addition, student debt borrowers can also often take advantage of forbearance and deferments in ways that are not possible to people who borrow mortgages. However, mortgages are different than student loans, and individuals who may be traumatized by repaying student loans should ordinarily not be afraid to borrow mortgages.