Mortgages, Debt and Better Investments

This year figures show that Americans are paying off a bigger slice of their mortgages, but what does this mean for personal debt and for the economy as a whole? What should we do once we’ve paid of a higher than expected percentage of our mortgage?

In May 2011 it was revealed that Americans have chopped off more than $100 Billion of their annual mortgage bill. This is comparable to the unemployment benefits paid out in a single year. Low interest rates and fears about unemployment are both believed to be key factors behind this feverish drive to pay off the bills.

This repayment should reduce mortgage bills, which in turn should free up more money that should get pumped into the economy. People will turn to lovemoney.com and other similar finance sites to see where they should put this money. It is reckoned that initially Main Street rather than Wall Street should benefit from this. We generally tend to spend our money on consumer goods when we have extra cash. In the case of lower income households, necessities are generally the first point of call.

The situation is the same in other advanced economies. In the UK, The Bank of England (the institution similar to the Federal Reserve) figures show that the population have the highest rate of negative housing equity since 1970.

Once we have some extra cash to invest, it might be a good idea to pay heed to Warren Buffet’s ten investment tips taken from his Letter to Shareholders back in 2008. The good thing about Buffet’s tips is that they are the sort of old fashioned common sense that your grandfather could have given you. Take the basic principle that it’s a business you understand, it has a favourable long-term outlook, a sensible management and a sensible price tag – what could make more sense?
Random Buffet factoid: his biggest investments (in P&G, Wells Fargo, Coke and AmEx) were all founded in the 19c, so don’t get too excited by start ups. Go and look up the rest of his tips yourself – they did him well enough.

One thought on “Mortgages, Debt and Better Investments”

  1. I suspect it will be a good thing for the economy as a whole. Like you said, when people have extra cash they tend to spend it on consumer goods and/or invest, which will put more money into the economy.

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