“Pay Thy Debt And Live”

Oct 2006 Issue

by Paula Clark

With the rise of interest rates and less business, the latest trend in the mortgage industry is called Mortgage Planning. The overall goal of a Mortgage Planner is to get you to borrow all of the equity out of your home (thereby earning the Mortgage Planner a fat commission), then for you to invest in a wide range of investments, from high-risk stocks to relatively safe whole life insurance contracts.

Mortgage Planners claim that equity buried in your home is not earning anything and is not liquid. Pulling your equity out of your home and investing it in liquid investments will not only earn a monetary return but keep your equity liquid in case you need it.

Mortgage Planners claim that pulling your equity out of your home and investing it into liquid investments is disaster-proof. According to them, the idea of working toward owning your home free and clear or building equity is old fashioned and will cost you a fortune in missed opportunities.

This philosophy of using your home mortgage as a primary tool to create wealth is a somewhat troubling one for this Latter-day Saint Mortgage Loan Lender. The question that goes through my mind is; “How do I follow prophetic counsel to get out of debt, live within my means, be self reliant, own my home free and clear, and not be a financial Neanderthal at the same time!”

Mortgage Planners boast that life has just changed. Owning your own home is crazy when you can use all that equity to make a fortune. Today’s homeowner moves every 5 to 7 years, rather than living in the same home for a lifetime like our parents and grandparents typically did.

Also unlike our parents, it is almost solely our responsibility to save for our retirement years. Thus, mortgage planners tout that using the equity in our homes to constantly increase our wealth is prudent, state of the art, and the only way we will be able to have the nest egg necessary to retire someday.

My problem with this whole scenario is the prudence of leveraging your family’s home as a tool to create wealth. It does not fit with what the Brethren advise in living providently. President Gordon B. Hinckley counseled in a 1998 General Conference address:

“I am suggesting that the time has come to get our houses in order…. Pay off debt as quickly as you can, and free yourselves from bondage… one has neither independence nor freedom from bondage when he is obligated to others.”

“Plan for your financial future . . . . Let us avoid unnecessary debt. . . . Be even more cautious in advancing years about “get-rich” schemes, mortgaging homes, or investing in uncertain ventures.”

Benjamin Franklin wrote, “Think what you do when you run in debt; you give to another power over your liberty.” Protestors shout that times have changed since Franklin’s day and most of the general authorities of the Church are all very old men and raised their fortunes in a different day.

I believe that principles of truth and wisdom never change. Our inspired leaders have always urged us to get out of debt, live within our means, and pay as we go. As President Ezra Taft Benson counseled his famous talk, “Pay Thy Debt and Live”:

“Many people do not believe that serious recession will ever come again. Feeling secure in their expectations of continuing employment and of a steady flow of wages and salaries, they obligate their future income without any thought of what they would do if they should lose their jobs or if their incomes were stopped for some other reason.”

Sooner or later economic hardships will come.

Don’t get me wrong, I am a 100% advocate of increasing my financial bottom line. What I advise, though, is doing it with disposable income, not the roof over our heads. Since investing always involves risk, the money that we invest should be money that we can afford to lose. Can you afford to lose your home equity? Or your home?

I have witnessed too many families, some LDS, forced to sell, downsize, and start over because they took out a home equity loan to purchase rental real estate. Property values dropped and they owed more than the house was worth. Facing financial reality forced them to sell their homes to pay their debts.

Prophetic counsel is never out of date. If we heed it, that means we need to stay out of debt, borrowing only for a home, education, or in some cases, a car. We need to save food and money on a regular basis in case of emergency. The counsel to pay off debt should include paying off our homes.

We should purchase homes that we can easily afford on the primary breadwinner’s income, with room to spare. We should live providently, not “keeping up with the Joneses.” After all, what is our purpose on this earth?

Beware of mortgage strategies which push you to borrow more than you should, that encourage you to pull the equity out of your family’s home with the promise of creating wealth.

Diligently work to get out of debt and seek the advice of a professional financial consultant who will help you invest with a Latter-day Saint perspective – one that will not wager the safety and security of your family’s home for the promise of riches.

Paula L. Clark is Branch Manager of Chase Home Mortgage, a division or JPMorgan Chase Bank. She has been a mortgage lending professional for 24 years in Las Vegas and is a member of the Green Valley, Henderson Stake.