Who Wants a Death Pledge?
If someone asked you if you wanted to take a death pledge, how fast would you run away?
Actually, there’s a good chance you already have one. While reading The Big Short, we learned that the word mortgage means “death pledge” in French. Despite being a former English teacher, I never thought about the etymology of the word mortgage. I just assumed it was finance jargon. And it is—would you have a thought a little harder about taking a mortgage if everyone called it a death pledge?
“I’m refinancing to a better interest rate on my death pledge.”
“Death pledge rates are really good right now.”
“Death pledges are good debt.”
“I’m debt-free except for the death pledge.”
“You’re invited to celebrate my new death pledge!”
The literal translation suggests a very serious commitment that is going to be with you for life. This isn’t something you’re going to waltz away from easily if you change your mind. You’ll be stuck with this contract until you die.
Though many mortgages are paid off long before death, the allusion to a serious, long-term contract still applies. You can check out the math behind the death pledge in Mortgage Myths. Today let’s consider other aspects of the decision to purchase a home.
Sorting Out Your Emotions
Many have pointed out that purchasing a home should not be an emotional decision. It is a business transaction. But let’s be honest—it’s hard not to be influenced by emotion when buying a house. A house becomes a home, and “there’s no place like home.” After all, “home is where the heart is.” I’ve heard people who are moving say that they are sad to sell because “this is where I brought my babies home” or “this is where I raised my kids.”
Seeing a beautiful home we believe will meet our family’s needs, host friends, and provide comfort day in and day out is emotional. Rather than pretending we can eradicate emotion, why not recognize them and navigate the decision making process with attention to how those emotions influence us?
Creating a spreadsheet of the features, size, costs, pros, and cons of our final death pledge candidates helped us objectify the choice. Sleeping on any big decision such as a death pledge is also essential. We also gained valuable insights from bringing an entourage of friends and family (the remodelers) to weigh in on prospective properties.
We purchased our home after three years of contemplation, number-crunching, and a year of renting in the neighborhood where we purchased. We questioned the cultural assumption that we needed a house and seriously considered the option of renting long-term. This was a helpful exercise which brought a perspective of gratitude, stewardship, and financial sobriety to our decision to sign a death pledge.
Is a House an Investment?
All the research we did surrounding our home purchase led us to a belief that has been truly freeing for us: buying a home (for your residence) isn’t primarily about investment.
I broke down the math debunking this myth in Mortgage Myths. If you are going to live in, maintain, furnish, pay taxes & interest, and insure a home—you are not primarily making a financial investment. Even if your home appreciates significantly, you probably won’t make a huge profit when all is said and done. And that’s perfectly fine, so long as you aren’t expecting it to be wildly profitable.
There are exceptions, of course. Some people get a great deal on a foreclosure, purchase with plans to rent the home in the future, or buy in a hot location that will drastically appreciate. And then there is actual real estate investments, not to be confused with purchasing what amounts to a liability on many levels.
The house we bought was our least favorite home style, in a city we didn’t love, in a neighborhood we didn’t love, to be near people we love. By near I mean I can watch my four-year-old ride his bike to his best friend’s house down the street. In many ways our home is more of a real worth investment than a net worth investment. I’m not offering that this example as great financial advice, but we couldn’t imagine living any further from our friends.
The false assumption that real estate is sure to appreciate has been brutally exposed, so while you shouldn’t purchase a personal residence as your main investment strategy, I wouldn’t be nonchalant about the numbers, either. Purchasing a home you can afford with wiggle room for all the hidden costs is prudent. Especially after seeing so many go upside down in their death pledges, even though they never missed a payment. I’ll bet that feels a bit like death.
Viewing our home as primarily a home, not an investment, also takes some pressure off when it comes to living in it. We knew hosting parties would invite stained carpet and having kids would invite stained everything! Of course we maintain our home with the hopes of being able to sell it when the time comes.
If you scored a killer deal on a home, congrats! But if you’re contemplating acquiring a death pledge, I’d encourage you to acknowledge your emotions, clarify why you want to purchase a home, and make sure your financial expectations are realistic.
Do you view your home as an investment or residence? What advice would you offer a prospective home-buyer?