Reply to: Gains made using Directors Loan

[Lance]

If a mortgage is not debt, then what it is?

And real value matters as well as interest rate. What do you think would happened if interest rate goes up and you are in negative equity because your house price lost value? You risk losing everything!

I didn't say it wasn't a debt. I said it should not be treated as a debt. Please read and digest before spouting your usual nonsense.

Interest rates have no impact on equity. You go into negative equity when the value of the house goes below the money owed on the mortgage.
And negative equity is only a problem if you can't afford the payments. Not that we're going see negative equity until house prices drop which seems unlikely as there aren't enough being built.

Your grasp of basic numbers is as poor for household finances as it is for contractor income.

[northernladuk]

<mod snip - no real contribution to thread>

[malvolio]

Are you saying that a secured loan isn't debt?

The legal definition of debt is simple though:
"A sum of money that is owed or due to be paid because of an express agreement; a specified sum of money that one person is obligated to pay and that another has the legal right to collect or receive."

Even in accounting you can only be creditor OR debtor. There isn't anything in between.

OK, have it your way. The monthly payments and any final balance are a debt, to repay the mortgage loan. I don't see such detail adds any benefit to the discussion. YMMV

[cwah]

A secured loan against an asset. There is a lien on the asset in favour of the mortgage provider if you default. It is not legally a debt, since the money has been paid.

Are you saying that a secured loan isn't debt?

The legal definition of debt is simple though:
"A sum of money that is owed or due to be paid because of an express agreement; a specified sum of money that one person is obligated to pay and that another has the legal right to collect or receive."

Even in accounting you can only be creditor OR debtor. There isn't anything in between.

[malvolio]

If a mortgage is not debt, then what it is?

A secured loan against an asset. There is a lien on the asset in favour of the mortgage provider if you default. It is not legally a debt, since the money has been paid.

[cwah]

A mortgage is not really debt. I know it is technically but it should not be considered so.
In fact try getting a car on credit with a debt of hundreds of thousands that isn't a mortgage.

As for investment. I'll say the same. If it's the house you live in then you should not consider it an investment. It's your home. If it goes down in real value that matters not a jot to you unless you want to sell.

If a mortgage is not debt, then what it is?

And real value matters as well as interest rate. What do you think would happened if interest rate goes up and you are in negative equity because your house price lost value? You risk losing everything!

[Lance]

Actually when you take a mortgage, you invest with borrowed money. And lot of it. So not all borrowed money is bad.

A mortgage is not really debt. I know it is technically but it should not be considered so.
In fact try getting a car on credit with a debt of hundreds of thousands that isn't a mortgage.

As for investment. I'll say the same. If it's the house you live in then you should not consider it an investment. It's your home. If it goes down in real value that matters not a jot to you unless you want to sell.

[Eirikur]

Actually when you take a mortgage, you invest with borrowed money. And lot of it. So not all borrowed money is bad.

I worked with a guy who took out a mortgage on his house in the late 90's to buy stock in a tech company, then the dotcom bubble bursted and he lost his house

[lecyclist]

Is it actually possible to cash out any significant amount from crypto? it's easy to buy it, but AFAICS, Extremely difficult to cash it.

I would have thought the same about a year ago. There is the argument that since cryptocurrency is the future of money, and you won't need to cash out, the question becomes irrelevant. Although you may need to go down a rabbit hole to come back with this conclusion.

In practical terms, as long as you use a major exchange (e.g. Binance, Coinbase or Kraken) cashing out is simple.

[cwah]

The number one stupidest financial thing to do. Investing (gambling) with borrowed money

Actually when you take a mortgage, you invest with borrowed money. And lot of it. So not all borrowed money is bad.

[mallisarealperson]

The number one stupidest financial thing to do. Investing (gambling) with borrowed money

Is that not part of every Mafia movie ever made. Resulting in the guy getting his legs broken or worse.

[Lance]

The number one stupidest financial thing to do. Investing (gambling) with borrowed money

I'll go one better.
Using borrowed money to try and win back money lost on earlier borrowings.

[Eirikur]

The number one stupidest financial thing to do. Investing (gambling) with borrowed money

[northernladuk]

What makes it worse is that I'm a CIMA qualified accountant too!
I admit my question makes me sound a lot more 'dim' than I actually am, however I probably didn't word it as well as I should have. Your choice of words is slightly on the condescending side but I guess I'm fine with that - after all It's a public forum and you're free to talk to people in a way that you wouldn't if you were talking to them in person.

Unfortunately we get a lot of questions like this and in many cases the person can be as dim as they sound. I see text on a screen it tells me the person doesn't understand the fact that the money from a DL becomes your personal money (albeit for a short period) so they are treated as personal gains. It's as simple as that. Directors loans are very poorly researched and understood as well so best avoided by most, we get our fair share of DL screw up posts as well.

Sadly, as worded, your post falls right in to these middle of these types of posts and the general advice is to just walk away. If the poster can't be bothered to research DL's and the fall out then they shouldn't be messing with them. There is often a back story to this we have to drag out the OP which opens up whole other cans of worms, particularly when crypto is involved as well.

It was how your post was worded and I'm only asking the question to help although I do admit it rarely looks like it on the surface.

Apologies if I'd made incorrect assumptions but if someone doesn't understand how personal money is treated after a DL I'll always be asking questions about the whole situation, not just the direct question asked.

[jamesbrown]

What makes it worse is that I'm a CIMA qualified accountant too!

I admit my question makes me sound a lot more 'dim' than I actually am, however I probably didn't word it as well as I should have. Your choice of words is slightly on the condescending side but I guess I'm fine with that - after all It's a public forum and you're free to talk to people in a way that you wouldn't if you were talking to them in person.

Cheers

Don't mind nluk, he's just tough on n00bs because we see a lot of the same posts repeatedly, many from folks that can't be bothered to do the minimum of research themselves, but you seem nice enough, so I wouldn't sweat it. Notwithstanding some niche situations, you'll probably find, as you dig into this further, that personal investments without a DL or pension contributions via YourCo are the way to go. There are quite a few threads on here along the same lines, albeit not generally involving a specific question about a DL (but I would avoid that strategy altogether because you don't want your investment decisions clouded by DL timelines), and they generally offer the same or similar advice.