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Mortgage featured stories

Good Debt V’s Bad Debt – What’s the Difference?

Home Finance, Investment Loans, Property, Tips
Share
Within financial circles many advisers and commentators regularly talk about the negative aspects of bad debt and positive approaches to good debt. But to many the difference is a mystery – isn’t debt just debt? Good Debt Lets first consider what good debt is.  Good debt is referred to as that debt that assists in building net worth through either income and / or the holding of an asset that will appreciate in value.  This type of debt could also often be tax deductible.
An obvious debt that is considered good debt is an Investment Home Loan whereby the debt assists with purchasing a residential property that is expected to generate income ( i.e. rent) and hopefully overtime the asset (house) value will increase in value. Another example would be a student loan as the cost incurred is potentially generating higher earning potential in the long term for the student. Some even consider debt against the family home as good debt as it reduces the need to pay rent, while historically we can expect the value of the home to increase over time.  But ultimately this is still a debt Bad Debt So, by comparison bad debt is that debt that is utilised largely for lifestyle, or consumer purposes.  These purchases are unlikely to generate income or be an asset that will grow in value. Examples of bad debt are a little more obvious – it is that high interest credit card debt that was utilised to purchase lifestyle ‘wants’ rather than ‘need’. Or, the holiday you took last Spring utilising a personal loan.  I can’t think of anything worse than still paying off a holiday years after you have enjoyed the experience! While many of us need motor vehicles for day to day living, I also view any debt utilised to purchase a car as a bad debt.  While many will argue with mean I view the vehicle as a depreciating asset, and many borrowers have been caught with a loan greater than the asset (car) value when it comes time to sell.  That is without even considering the cost of interest incurred over the life of the loan. Something to think about. Regardless of whether we classify debt as ‘good’ or ‘bad’, the fact is that debt is debt! Certainly if you hold both ‘good’ and ‘bad’ debt I would suggest that in most situations your primary focus should be to reduce the bad debt as soon as possible as a very high priority. But even when our focus is creating debt to generate longer term wealth we need to have a balanced approach.  Repayment of debt to reduce interest expense and build a stronger net worth position is considered a sound strategy. Professional advice should also be sought before taking out investment debt.  Any debt carries risk, and taking out a loan to purchase an asset may provide opportunities to accelerate your net worth (i.e. income and capital growth exceeds loan cost) but it can also amplify losses.  What if the asset you purchased falls in value?  In the past this has happened to many share investors who have leveraged their portfolio with debt to purchase more shares, only to see the share market fall. Some final thoughts To build wealth, and the lifestyle we desire, often requires debt. However there are some principles I believe are worth standing by when it comes to debt :
  • Never purchase lifestyle items via a credit card, unless you have the savings available to pay the credit card off when the statement is received.
  • Always try to utilise savings to purchase depreciating assets such as motor vehicles
  • Focus on paying off bad debt as quickly as possible as your first priority
  • If you consolidate ‘bad debt’ into your home loan to reduce interest costs, make sure your repayments are increased to ensure that portion of debts is paid off quickly. You don’t want to pay a car loan off over 30 years!
  • Get professional advice before considering investment debt, to make sure it is in line with your wealth creation strategy and goals.
  • Just because a debt is tax deductible it doesn’t mean it shouldn’t be repaid as soon as possible. Repay the debt to create more equity and wealth that has the potential to be geared up against to purchase a new investment asset.
  • Once you have housing debt, consult with a lending professional at least every two years to make sure your loan terms remain competitive
  • Wherever possible make more than the minimum repayments on your loans to pay them off sooner.
What are your key principles when it comes to debt? Comment below.   Photo by; Alice Pasqual on Unsplash  

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Is a tree or sea change on your horizon?

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Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

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Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Mortgage featured stories

Good Debt V’s Bad Debt – What’s the Difference?

Home Finance, Investment Loans, Property, Tips
Share
Within financial circles many advisers and commentators regularly talk about the negative aspects of bad debt and positive approaches to good debt. But to many the difference is a mystery – isn’t debt just debt? Good Debt Lets first consider what good debt is.  Good debt is referred to as that debt that assists in building net worth through either income and / or the holding of an asset that will appreciate in value.  This type of debt could also often be tax deductible. An obvious debt that is considered good debt is an Investment Home Loan whereby the debt assists with purchasing a residential property that is expected to generate income ( i.e. rent) and hopefully overtime the asset (house) value will increase in value. Another example would be a student loan as the cost incurred is potentially generating higher earning potential in the long term for the student. Some even consider debt against the family home as good debt as it reduces the need to pay rent, while historically we can expect the value of the home to increase over time.  But ultimately this is still a debt Bad Debt So, by comparison bad debt is that debt that is utilised largely for lifestyle, or consumer purposes.  These purchases are unlikely to generate income or be an asset that will grow in value. Examples of bad debt are a little more obvious – it is that high interest credit card debt that was utilised to purchase lifestyle ‘wants’ rather than ‘need’. Or, the holiday you took last Spring utilising a personal loan.  I can’t think of anything worse than still paying off a holiday years after you have enjoyed the experience! While many of us need motor vehicles for day to day living, I also view any debt utilised to purchase a car as a bad debt.  While many will argue with mean I view the vehicle as a depreciating asset, and many borrowers have been caught with a loan greater than the asset (car) value when it comes time to sell.  That is without even considering the cost of interest incurred over the life of the loan. Something to think about. Regardless of whether we classify debt as ‘good’ or ‘bad’, the fact is that debt is debt! Certainly if you hold both ‘good’ and ‘bad’ debt I would suggest that in most situations your primary focus should be to reduce the bad debt as soon as possible as a very high priority. But even when our focus is creating debt to generate longer term wealth we need to have a balanced approach.  Repayment of debt to reduce interest expense and build a stronger net worth position is considered a sound strategy. Professional advice should also be sought before taking out investment debt.  Any debt carries risk, and taking out a loan to purchase an asset may provide opportunities to accelerate your net worth (i.e. income and capital growth exceeds loan cost) but it can also amplify losses.  What if the asset you purchased falls in value?  In the past this has happened to many share investors who have leveraged their portfolio with debt to purchase more shares, only to see the share market fall. Some final thoughts To build wealth, and the lifestyle we desire, often requires debt. However there are some principles I believe are worth standing by when it comes to debt :
  • Never purchase lifestyle items via a credit card, unless you have the savings available to pay the credit card off when the statement is received.
  • Always try to utilise savings to purchase depreciating assets such as motor vehicles
  • Focus on paying off bad debt as quickly as possible as your first priority
  • If you consolidate ‘bad debt’ into your home loan to reduce interest costs, make sure your repayments are increased to ensure that portion of debts is paid off quickly. You don’t want to pay a car loan off over 30 years!
  • Get professional advice before considering investment debt, to make sure it is in line with your wealth creation strategy and goals.
  • Just because a debt is tax deductible it doesn’t mean it shouldn’t be repaid as soon as possible. Repay the debt to create more equity and wealth that has the potential to be geared up against to purchase a new investment asset.
  • Once you have housing debt, consult with a lending professional at least every two years to make sure your loan terms remain competitive
  • Wherever possible make more than the minimum repayments on your loans to pay them off sooner.
What are your key principles when it comes to debt? Comment below.   Photo by; Alice Pasqual on Unsplash  

More Stories

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Mortgage featured stories

Good Debt V’s Bad Debt – What’s the Difference?

Home Finance, Investment Loans, Property, Tips
Share
Within financial circles many advisers and commentators regularly talk about the negative aspects of bad debt and positive approaches to good debt. But to many the difference is a mystery – isn’t debt just debt? Good Debt Lets first consider what good debt is.  Good debt is referred to as that debt that assists in building net worth through either income and / or the holding of an asset that will appreciate in value.  This type of debt could also often be tax deductible. An obvious debt that is considered good debt is an Investment Home Loan whereby the debt assists with purchasing a residential property that is expected to generate income ( i.e. rent) and hopefully overtime the asset (house) value will increase in value. Another example would be a student loan as the cost incurred is potentially generating higher earning potential in the long term for the student. Some even consider debt against the family home as good debt as it reduces the need to pay rent, while historically we can expect the value of the home to increase over time.  But ultimately this is still a debt Bad Debt So, by comparison bad debt is that debt that is utilised largely for lifestyle, or consumer purposes.  These purchases are unlikely to generate income or be an asset that will grow in value. Examples of bad debt are a little more obvious – it is that high interest credit card debt that was utilised to purchase lifestyle ‘wants’ rather than ‘need’. Or, the holiday you took last Spring utilising a personal loan.  I can’t think of anything worse than still paying off a holiday years after you have enjoyed the experience! While many of us need motor vehicles for day to day living, I also view any debt utilised to purchase a car as a bad debt.  While many will argue with mean I view the vehicle as a depreciating asset, and many borrowers have been caught with a loan greater than the asset (car) value when it comes time to sell.  That is without even considering the cost of interest incurred over the life of the loan. Something to think about. Regardless of whether we classify debt as ‘good’ or ‘bad’, the fact is that debt is debt! Certainly if you hold both ‘good’ and ‘bad’ debt I would suggest that in most situations your primary focus should be to reduce the bad debt as soon as possible as a very high priority. But even when our focus is creating debt to generate longer term wealth we need to have a balanced approach.  Repayment of debt to reduce interest expense and build a stronger net worth position is considered a sound strategy. Professional advice should also be sought before taking out investment debt.  Any debt carries risk, and taking out a loan to purchase an asset may provide opportunities to accelerate your net worth (i.e. income and capital growth exceeds loan cost) but it can also amplify losses.  What if the asset you purchased falls in value?  In the past this has happened to many share investors who have leveraged their portfolio with debt to purchase more shares, only to see the share market fall. Some final thoughts To build wealth, and the lifestyle we desire, often requires debt. However there are some principles I believe are worth standing by when it comes to debt :
  • Never purchase lifestyle items via a credit card, unless you have the savings available to pay the credit card off when the statement is received.
  • Always try to utilise savings to purchase depreciating assets such as motor vehicles
  • Focus on paying off bad debt as quickly as possible as your first priority
  • If you consolidate ‘bad debt’ into your home loan to reduce interest costs, make sure your repayments are increased to ensure that portion of debts is paid off quickly. You don’t want to pay a car loan off over 30 years!
  • Get professional advice before considering investment debt, to make sure it is in line with your wealth creation strategy and goals.
  • Just because a debt is tax deductible it doesn’t mean it shouldn’t be repaid as soon as possible. Repay the debt to create more equity and wealth that has the potential to be geared up against to purchase a new investment asset.
  • Once you have housing debt, consult with a lending professional at least every two years to make sure your loan terms remain competitive
  • Wherever possible make more than the minimum repayments on your loans to pay them off sooner.
What are your key principles when it comes to debt? Comment below.   Photo by; Alice Pasqual on Unsplash  

More Stories

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

First home buyers turn to Bank of Nan and Pop

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First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

First home buyers turn to Bank of Nan and Pop

News
First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

First home buyers turn to Bank of Nan and Pop

News
First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

What you should know before buying ‘subject to finance’

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What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

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What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

Not feeling the budget love? 4 ways you could still get ahead

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Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Low deposit scheme helps over 150,000 families buy sooner

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Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.