Many people feel fear debt. Just thinking about taking on a large debt can flood consumers with anxiety and dread, even when they are purchasing homes for their families. But it doesn’t have to be this way. In fact, it shouldn’t! The fact is, you need to start looking at debt differently. Not all debt is bad—it’s all in how that debt is structured.

A Liability Full of Assets

I always say that mortgage debt is the greatest debt in the world, and here’s why. First of all, interest rates are incredibly low. There are very few other types of loans that offer such a low rate of interest, so it often makes sense to leverage mortgage loans to pay off other kinds of debt, such as credit cards and car loans, with cash from a mortgage loan. Paying off credit card debt is a no-brainer—interest compounds by the day and rates can be as high as 20% or more. But you’d also benefit from paying off a vehicle loan, since your car is a depreciating asset, and a loan attached to it is a liability.

So what makes a mortgage different? Well, with any luck, your home is increasing in value and you’re building equity with each principal payment you make. Even if it isn’t going up in value, you still get to write off the interest you pay each year. You can’t do that with any other kind of debt! The amortization schedule on a home loan is also longer than for any other type of loan, meaning that you’ll pay less toward the balance each month each month since you have so much longer to pay it off. That means more cash in your pocket each month—money that you can use for emergencies (rather than relying on credit cards), invest in your retirement, or sock away for a vacation or other big purchase. Cash flow is king; it gives you more flexibility, freedom, and peace of mind.

Stretch Debt Out

With that in mind, I always recommend a 30-year mortgage. I can’t think of a single situation in which a 15-year loan makes sense. When people approach me about a 15-year mortgage, it’s usually because they are inherently uncomfortable with debt and want to get rid of it as quickly as possible. Here’s the thing, though; you can pay off a 30-year loan in 15 years if you want to (assuming your loan has no pre-pay or acceleration cause). But with the longer loan term, you have the flexibility to NOT pay it off more quickly. You aren’t locked into a higher payment, so you can use those funds however you wish without having to deal with the hassles of refinancing to free up cash. Don’t need the cash for anything else in a given month? If you want to, go ahead and put it toward the mortgage. But, assuming you don’t have any other consumer debts, I’d recommend stashing it away for retirement or making an investment instead.

Would you rather borrow $100,000 and pay back $5,000 in two years or borrow a million and pay $500 a month for the next 50 years? Why would you choose the latter? You’ll have the cash you need to live the lifestyle you want. So what if you’re on the hook for a long-term loan? The fact is, most people don’t live in houses for more than five to seven years, so while it may seem scary to see those years of debt stretching out before you, the reality of what you’ll pay and how long you’ll pay it for is often very different. And even if you do stay in your home for 30 years, you’ll have more cash available. For most people, having access to more liquid cash—rather than having fewer debts to pay each month—is what offers greater financial freedom.

debt is debtAttitude Adjustment

Yes, debt is debt. You’re going to have to pay it off one way or another. But you can structure that debt so that it works for you and allows you the freedom to live with less financial worry and stress. We live our lives month-to-month, so negotiating lower payments each month means more cash for you on a day-to-day basis. knowing you’ve got that money in the bank can offer a tremendous sense of stability and a much greater peace of mind than you would have locked into paying huge amounts toward that debt every month.

Partnership Points

A final note on structuring your mortgage in a way that works for you. If you’re in a relationship, such as a marriage or long-term partnership, resist the urge to put both your names on the bank note. Whenever possible, structure your debt so that the person who earns less money is responsible for small debts, such as car loans and credit cards. This frees up the finances of the high earner, giving him or her the most favorable debt-to-income ratio so that he or she can borrow the maximum amount possible. With proper planning and structuring, the high earner can take on the mortgage solely on the basis of his or her own income. Not only does this offer the opportunity to create a favorable debt-to-income ratio, it also means that should the worst happen, such as a foreclosure or short sale, only one person’s credit is affected, allowing both partners to pick up the pieces and get into a new home much faster.

So, whether you’re buying a new home or refinancing a current loan, keep in mind that best way to manage your higher-interest debt might just be to mortgage it. It’s time to start looking at your

debt mortgage debt