Monthly Archives: July 2013

Before you take a housing loan

In the word mortgage, the mort- is from the Latin word mori (via old French “mort”) for death and -gage is from the sense of that word meaning a pledge to forfeit something of value if a debt is not repaid. So mortgage is literally a  “death pledge”.

For many decades, we have come to believe that owning a home is a God-given right. We are expected to begin our married life with a home, without realising it took our parents a lifetime to save for. Incidentally, during the last forty-five to fifty years, and especially the years 1960 to 1980, a home purchased with a fixed interest rate was the safest and surest way to build personal net worth and equity.

Beginning in 1983, however, the “rules of the game” changed; inflation slowed down and interest rates went up – a direct reversal of these two factors from the previous twenty years. It has taken a while for our society to recognize this, and even longer, as yet, accepted it.

When considering the purchase of a home, we should apply the same three criteria as for undertaking any debt. However, the economic criteria are very difficult to nail down in today’s economic environment. Even in the period 1960 to 1980, there was not a guaranteed way to pay the debt except for returning the home back to the lending institution.

Jobs are not nearly as secure today as they were in the past. Inflation is certainly not a sure thing, and fixed low interest rates may very well be a thing of the past.

The psychological burden of home mortgage debt is more severe than most people think, especially if a woman whose centre of influence and security is in her home is involved. Studies have shown that having mortgage debt is a stressful factor and that degree of stress relates to the amount of the mortgage.

When considering the purchase of a home, we should apply these three criteria as for undertaking any debt loan.

First of all, does it make economic sense to incur a home loan? To determine this, there are two rules to follow:

The cost to borrow (after-tax interest) must be less than the economic benefit received (interest, yield, and/or growth in value). Rule two: there should be a guaranteed way of repayment.

Secondly, if you’re married, are both spouses free from any anxiety regarding this home loan? The principle indicates that there must be unity between the spouses. Can the home loan be undertaken with peace of mind? If you experience a lack of peace when you picture yourself taking on this home loan, do not enter into the debt.

Thirdly, ask yourself, what personal goals and values am I meeting with this home loan that can be met in no other way?

These criteria are practical, pragmatic, and biblical and should be applied unemotionally to every debt loan opportunity. The counsel to young couples who   are considering the purchase of a home or those intending to purchase a new home, is never to become so attached to the home that they could not give it up if the debt could not be paid.

The question of whether or not to pay off the mortgage, if that is an option, is really an economic, psychological decision. Economically, it may not make sense to pay off a low interest rate mortgage, even if one has the funds to do so. However, psychologically, it may be, by far, the best course. Again, I would remind you   that finances are nothing more than a resource to accomplish other goals and objectives – they are never an end in themselves. Therefore, even if it does not make economic sense to pay off a mortgage, there may be higher priority goals and objectives that need to be met. Money then becomes merely the resource to meet those goals. The decision does not have to be always an economic one. That counsel is, of course, good for all decisions.

The Bible does show many ways to overcome any financial crisis. Many of these principles are laid out in our successful course, the Scriptural Financial Freedom series. To learn more, you can  download the Small Groups kit from our Store.