Mortgages and Rents

If you are like most people, you have an address that identifies your space on earth, and you pay somebody for the privilege of associating that address with yourself. In each case, you claim the right to uniquely use a vessel of some number of cubic feet for your own private purposes. In my case, I claim to possess a vessel that contains around 25000 cubic feet of space within its walls for me to fill as I deem most appropriate for my needs. Others would say that I own a small 1 1/2 story bungalow with a basement. You either own or rent something that you call home.
Ownership arrangements and rental arrangements are very different from each other. In an ownership arrangement, you will have agreed with someone who has lent you a large block of money to acquire complete ownership over a period of around 30 years by making a series of payments over that long stretch of time. In a rental arrangement, there is no thought of owning the space, you just pay someone else to stay in it. Renters do not acquire equity while owners do. Equity, for those who don't know, is determined by a simple mathematical formula of

Equity = amount it's worth - amount you owe

For a renter, equity = 0. For a homeowner, equity is a positive or negative number of dollars. If it is a positive number of dollars, it can be used as a temporary source of income. If it is zero or negative, it can't. Equity defines your relationship with your housing into three major categories: 

1. much positive equity
2. little or no equity
3. much negative equity

Which of these categories you fall into sets up the choice you make about what your best approach is to your rent or mortgage payment. In category 1, you have options for refinance in a way that can greatly reduce monthly outflow. In category 2, your monthly cash outflow is determined by a previous agreement. In category 3, you feel trapped by your housing. The next couple of posts will focus on strategies and options in each of these categories. I expect to address them in backwards order because 3, 2, 1 is the order of how big your emergency is.