Your Mortgage is an Asset

If you have studied physics in high school, you know that there is an undivided relationship between Space and Time: you can’t talk about one without the other, and you can explain one with the other.

Let’s see a practical example to see how Space and Time can be explained in similar fashion:

The reason why human, for thousands of years, believe the earth is flat is because we are too close to it (in space).  If we observe the earth from a distance, it is very easy to see that the earth is actually round, not flat.

The reason why most property owners, for thousands of years, believe a mortgage is a liability is because we are too close to it (in time).  If we observe a mortgage in a distant future, it is very easy to see that your mortgage is actually an asset, not a liability.

The fact that we are paying the mortgage payment every month, we are pretty sure our mortgage is a liability.  But didn’t we walk on a flat surface every day and the earth is still round?

So if you believe that the earth is round, you almost have to agree with me that your mortgage is an asset before I even give you my explanation!

OK, I know I am being cheeky.

Let me use a few examples to demonstrate here.

Example 1:
If you bought an average home 40 years ago, you probably had to pay $8k for it at the time, and say you took on a 100% mortgage (without using any of your money).

Over the next 40 years, you didn’t pay anything back (neither interest nor principle), you may end up with roughly $120k debt and a property valued at roughly $360k, so you will create a net worth of about $240k.

It is not hard to see that the principle of the mortgage $8k you borrowed 40 years ago has lost its significance compared to today’s money.  This is the magic of inflation, which allows your debt to drop in value in real term over the years.

While your debt is dropping in value through inflation, your property is going up in value beating inflation; the gap between the two has created serious wealth for you.

Example 2:
If you think the value of properties (from $8k to $360k over the last 40 years) is a good indication for what has really happened in Australia in general.  How about using the same formula moving forward for 40 years?

The diagram shows a property will go from $360k to $16Million in the next 40 years, and if you borrow the whole lot (a mortgage again), without paying any interest or principle over next 40 years, you will end up having a $11Million net worth.

Remember the interest you didn’t pay will generate more interest, so it is interest on interest compounding for 40 years!  But it is still no big deal in the whole scheme of things.
Money loses value over time through inflation, it includes the money you borrow, and the interest you have to pay.

Example 3:
What if you bought an investment property instead of a home 40 years ago?

For simplicity, we assume your net rent is 3% here, and your debt is gradually paid off because rent is increasing over time.
If you didn’t reinvest into other things, you will end up having almost $500k net worth.

Obviously most investors don’t wait for the cash to sit there, they usually reinvest into other things.

Example 4:
Using the same formula as example 3, moving forward for another 40 years, your net worth will be hitting $22Million, just by simply having one average investment (a $360k mortgage) today!

A very good reason to live for another 40 years!

There are many statistical reports you can read to compare different types of investment, such as share vs properties, etc.  All of them show similar results because they don’t talk about the importance of leverage through the use of mortgages in those comparisons.

How would you treat an asset? The universal rules are:
• Buy as early as possible;
• Buy as much as you can safely;
• Hold and never sell;

Mortgage is an asset, so the same rules apply:
• Get yourself into mortgages as early as possible;
• Get yourself into as much mortgage as you safely can;
• Hold onto them and never pay them back (including principle and interest);

Once you understand this concept it is easier to understand why it is very common for property investors to take interest only loans forever because they don’t want to pay back the principle and let it lose value over time.


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Bill Zheng


Bill is founder of Investors Direct Financial Group, a leading property finance company providing financial solutions for property investors and developers. Bill is a keynote speaker at many property and finance conferences throughout Australia. Visit

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