> and most of that payment going towards my saving
For the first several years at least, most of the mortgage payment goes to interest and taxes, not principal, and is "wasted" in much the same way rent is.
> If you're not paying off the principal, you're just renting from the bank without the benefit of having a landlord to fix things.
Renting a house is more or less unheard of. If I want a house I need to buy one (or: “rent from the bank” as it were)
And the market price is basically “what two high income earners can afford if they pay interest only”.
So: if I want to live in a house at all, I need to buy it using borrowed money, and in the window I expect to live in a house (say 10-25 years) I couldn’t make a large dent in the principal regardless, because of the extremely low interest rates (around 1% now for mortgages) and the high prices that come from that. I don’t like it, but I don’t have a choice.
Also regulations strongly favor buying with borrowed money over renting. Interest can be deducted while those who rent from a landlord obviously pay interest too - indirectly through their rent - but in their case it isn’t deductible. So anyone who is forced to rent (e.g because they can’t afford the huge 15-20% down payment or aren’t paid enough to get the mortgage) is pretty much subsidizing the tax deductions of those who take mortgages.
I don't really get this. I just recently bought a house. Paying down my mortgage is just a bit more expensive than renting my apartment was. Leases are a year long, I think I could sell my house within that period of time, and we wouldn't need to ask our landlord's permission. Why is a mortgage strictly worse for living off of savings?
> interest payments from the mortgage can be directly compared with rent, but not the principle repayment portion of the mortgage.
You keep saying this but my mortgage payment for the past six years has been 0. And when I had a mortgage the payment always was comparable with the rent I was paying on a 2 bedroom apartment before buying the house. That apartment would never accommodate my family of four.
If renting works for you that's great, keep renting. But don't pretend it's because it is somehow cheaper than owning - it's not.
> I feel it should include mortgage interest, excluding principal.
It does. When you start a mortgage, interest is around 90% of the payment. So by definition mortgage is virtually all interest.
True, later the amount of interest goes down, but that's just a detail - the amount of money tied up in the house is what matters, not the accounting in your bank.
> The first few years of your mortgage, you aren't gaining much of any equity. It's nearly all interest payments.
It might not have to be that way.
Where I live we have the linear mortgage. Every month I pay a constant amount back on the principal, and a variable amount of interest on the remaining principal. At the end of the mortgage (30 years here) it is all paid off. With this type of mortgage we pay the lowest overall amount of interest.
Because the monthly payment goes down each month, the first payment is the highest. As a result some people choose to get a different type of mortgage instead, even though the linear type costs the least in the end.
> Paying down my mortgage is just a bit more expensive than renting my apartment was.
Unless you already have a substantial nest egg or took out an expensive mortgage, your life savings were substantially reduced by the down payment. In addition to a more expensive monthly payment there are property taxes, maintenance costs ($ and time), HOA fees, and other burdens depending on your region and property type.
> The financial arguments assume one only pays the minimum mortgage payment amount.
They also tend to ignore that mortgage repayments remain static while rent goes up, that interest payments goes down if you pay in advance (offset accounts) and that once it's all payed off your rent is $0.
A mortgage for a home within my means is one of the best financial decisions I've ever made.
>Interest payments are not adding to your wealth, they're subtracting from it. Almost none of your house payment in the early years of the mortgage goes towards increasing equity.
Ya that's fair based on the payment schedule, banks gotta get their money if you pay it off early; but still more equity than renting.
>Unless you bought an adjustable rate mortgage.
Ya a lot of people got burned by balloon payments in 2008 after the market tanked. They were speculating more so than buying a house to live in many times I suspect. I bought a house in 2002 and it never went below what I paid for it by 2008. I bought at a really good time for my city though.
>Nearly all people imagine that if they paid $X for a house, then sold it for $(X +Y) that they made $Y profit.
I don't think anything ever works that way. Always giving someone a cut.
>They leave out all other costs, like taxes, real estate commissions, insurance, etc., etc., etc.
Ya all that sucks. But if you are renting, you still pay that for somebody else, it's baked in plus profit. If renting wasn't profitable, they wouldn't do it.
> Of course, on paper it's a terrible idea to pay off a mortgage early (assuming a reasonably low interest rate).
Why? The longer my mortgage lasts, the more interests I'm paying (no matter how low they are). If I could pay the entirely of my mortgage now, I would because it will be cheaper.
I don't think rich people (the really rich ones) pay their houses valued in 1 million, via mortgages. They pay them upfront (because they have the money). Why on earth would they apply for a mortage that lasts 10-20 years? They would end up paying 1 million + interests.
> My mortgage is a couple hundred less than a crappy one bedroom apartment now.
the total cost of ownership is not just the mortgage interest payments - it must include the cost of the equity you invested, which is both the initial deposit as well as any principle payments made so far.
If you added all this up, it would be quite likely similar to the cost in rent of a similar house/apartment.
this isn't entirely true either. You need to live somewhere. Yes you own the equity, but it's always going to be locked away as "home equity". It has an advantage of giving you higher debt flexibility by taking loans out against it - but to say it is the same as banking cash as compared to renting is wrong.
Unless you downsize your living or sell the house without buying another one (which means you will be renting) that money is effectively gone as far as liquid cash is concerned
>bought a home for $200k in Western Massachusetts. Paid in cash so I no longer have to pay rent/mortgage
Don't take this the wrong way, I'm sure you considered this, but... why put all that cash down when you almost certainly could have got a low interest mortgage and made more by putting that money in... well anything really?
> I would need to spend 2/3 of my monthly income for 30 years
But it is not 2/3 of your income for the entire 30 years.
Even if it is 2/3rds of your income right now, the mortgage payment only ever goes down due to the three factors of inflation, refinances and (hopefully) raises you get over the decades. Compare to rent which only ever goes up.
> The government lets you deduct your mortgage interest from taxes
This is effectively not true anymore.
> Also, what am I going to do instead, rent? My rent can go up $50 bucks a year where my mortgage payment is locked in. For most people, home ownership is the safest and best way to build a retirement nest egg and a tangible asset to borrow against in times of trouble.
I'm going to push back a touch on this, it's not really true. Mortgage rates don't usually change in the US(because we take 30yr fixed mortgages generally). But housing costs do go up for owners: property taxes, and property maintenance.
Generally renting vs owning is mostly a wash, sometimes one is cheaper than the other, just depending on the local housing market.
Historically property has a about a 1%/yr real rate of return, so housing basically keeps up with inflation, but not much more. I know recent history makes people think this is not true, but it really is. It seems unwise to think this recent history will continue forever. Equities historically get a 4-6%/yr real return, drastically outperforming the historic returns of real estate.
But yes, lots of people tend to not save for retirement, making their houses their de-facto retirement savings. The problem is, they have to live somewhere, making their house value somewhat hard to spend in retirement.
> your rent money is literally doing nothing for you
Your rent money is, but your down payment is not. Its getting at least a 5% return, and at best much more than that. And renting is cheaper than buying right now, because interest rates are high for current buyers BUT NOT current owners; supply and demand will presumably change that over time, but i.e. I can rent out our Austin home pretty cheap as is; if I'd bought it today and rented it out, I'd need to charge MUCH more to break even.
I agree you should buy what you want and use the payments as the guide; and maybe you can re-finance in the future. But when I plug payments into investment calculators, buying the home isn't coming out ahead of investing the down payment and renting instead.
For the first several years at least, most of the mortgage payment goes to interest and taxes, not principal, and is "wasted" in much the same way rent is.
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