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Comment by swimfar | Hacker News Reader

>houses and cars are assets.

I would guess that the majority of people do not own their house outright. Just because you have a mortgage on a one million dollar house, doesn't mean you have one million dollars worth of wealth in your house.

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Yes this is one of the main points of the book. What people think is wealth is usually just a lot of debt. Wealthy people use debt to make money. Poor people use debt to buy things, to paraphrase another article that was on HN a few weeks ago.

Your mortgage is itself an asset. It’s one of the best hedges against inflation - as long as you don’t fall into the refi trap.

It literally isn't. It's a liability. Debt being reduced by inflation doesn't change that fact.

You are of course not wholly wrong. However, people paying on the latter half of a 30 year mortgage are almost certainly paying much less for housing than they would be paying to lease, due to inflation. And of course these payments are increasingly equity-weighted.

Just because a mortgage is a liability doesn't mean it's a bad financial decision to incur a mortgage to own a house, agreed.

I think it’s going to be futile to argue with you (partially because you’re correct in the technical sense) but I’ll give it one shot.

Imagine you have 20 million. Should you buy a million dollar house outright, or get a mortgage? Look at the prime rate today and compare it with expected market returns over the life of a mortgage.

This is without even considering the ground reality of renting a place (which is the common alternative), where rents are liable to rise perpetually, and without considering a plethora of other factors which contribute to calling a mortgage an asset.

Of course, if you can get by without needing to pay for shelter at all, you should do that.

A better way to describe that is that buying a house with a mortgage is a leveraged investment.

The mortgage is the opposite of an asset.

It seems like you’re in a black and white world. Look up what asset means - it’s more than just antonym to liability.

The whole point of accounting is to force black and white distinctions, especially in ambiguous situations. But in fact there is no ambiguity about this. Owing someone money doesn't earn you money. Owning an asset that you may have acquired with a loan is what earns you money.

I totally agree. I'm making the narrow point that a mortgage is a debt, and classified as a liability. A house is an asset. The benefit of purchasing real estate with leverage vs cash doesn't change how they sit on a balance sheet.

Personally I argue to everyone they should put down as little as possible for the reasons you're stating.

Only if the interest rate is fixed, right? Is it common for mortgage interest rates in the USA to be fixed at a set percentage for the life of the loan?

Yes it is.

And this is one of the relatively few situations that work out in favor of the consumer. With most mortgages, you can refinance to a lower interest rate--perhaps with some associated costs--if rates go down. But if rates go up, you're locked in with a fixed rate mortgage.

What is "the refi trap"?

Some people keep refinancing, taking out more money and accruing more debt. They do this every few years, never paying off their loan.

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