Rethinking Debt: Why Not All Borrowing Is Bad

One of the most common things I hear from clients is,
“I just don’t like the idea of having debt — I want to pay off my mortgage as fast as I can.”

That instinct is understandable. There’s peace of mind that comes with eliminating debt. But when it comes to your mortgage, it’s worth pausing to ask: Is paying it off early the most effective use of your capital?

The reality is not all debt is bad. In fact, when used strategically, certain types of debt can support long-term financial health and flexibility.

Bad debt is typically high-interest and tied to consumption rather than investment.  Common examples include:

• Credit card balances that aren’t paid off monthly
• High-interest personal loans used for discretionary spending

Good debt or what we might call “strategic debt”, by contrast, tends to be lower cost and aligned with long-term value creation. A mortgage often falls into this category, particularly if you have a low, fixed interest rate.   In today’s inflationary environment, a low-rate mortgage can be considered an asset.  For example, a 3.5% fixed-rate mortgage in a 3.5% inflation environment has a real interest rate of zero.  That kind of borrowing power can work in your favor over time.

It may come as a surprise, but many high-net-worth individuals choose to maintain a mortgage, not because they need to, but because it provides strategic financial flexibility and tax efficiency.

Depending on your tax bracket and the size of your loan, the after-tax cost of your mortgage could be less than the stated rate, freeing up capital for other opportunities.  Furthermore, for some households, mortgage interest is the key deduction that allows them to itemize – meaning that without it, they might end up paying more in taxes by defaulting to the standard deduction.  The higher your tax bracket, the more valuable each dollar of deductible mortgage interest becomes.

Keeping a mortgage in place can help:

• Preserve liquidity to manage unexpected expenses or take advantage of opportunities
• Invest cash in assets that offer higher long-term returns
• Potentially benefit from tax deductions that lower the effective cost of borrowing
• Avoid over-concentrating wealth in a single illiquid asset (your home)

In this context, a mortgage isn’t a burden – it’s a deliberate decision to deploy capital more efficiently.

Paying off your home can feel like a major milestone – and for some it’s the right move! But doing so too aggressively can limit your options. Once you direct excess cash into your mortgage, that money becomes much harder to access.

If the unexpected occurs — a health event, a job transition, or market volatility— you may wish you had some more liquidity on hand.  Before accelerating your mortgage payments, consider the following:

• Do I have a fully funded emergency reserve?
• Am I on track with retirement savings and other long-term goals?
• Could this cash be more productively invested elsewhere or kept flexible for future needs?

Debt doesn’t need to be feared. Like any financial tool, it simply needs to be understood and managed thoughtfully within the context of your broader goals.  When used wisely, a mortgage can support both peace of mind and long-term financial benefits – enhancing tax efficiency, maintaining flexibility, and optimizing your personal balance sheet.

If you’re wondering whether to pay off your mortgage or maintain it as part of a broader financial strategy, we’re here to help.  At Bradley, Foster & Sargent, we work closely with clients to make smart, balanced decisions about debt, investments, and financial planning.

Let’s start a conversation about how to put your capital to its most effective use.