Mortgage can be evil sometimes but I am extremely happy with mine. I purchased a house and after 3 years I am paying less than what I used to pay for 1 bedroom apartment. In 10 years, my fixed rate will make my investment even more handsome.
Without mortgage I'd still be paying for rent, possibly forever. My house already appreciated over 30% in 3 years and better investment than keeping the money in the bank or even the best years of the market.
Anyone answering “no” to this is wrong. A mortgage payment includes insurance, various property taxes, principle, interest, and sometimes other items such as mortgage insurance.
Principle and interest are fixed for most people. Mortgage insurance, as an example, is fixed. Everything else is variable.
The vast majority of buyers will see huge changes (increases) to their property taxes and insurance over the lifetime of a mortgage.
There’s also opportunity cost from all the upfront and ongoing capital, and homeowners practically never include that in their monthly costs estimates. Opportunity cost grows over time, too. Not just from compounding growth, but from maintenance and repairs that you otherwise wouldn’t make.
TLDR owning a home isn’t a fixed cost, and it’s usually way more expensive and variable than people are admitting or calculating.
This is a pretty limited view of mortgages. In varies across countries, but in the U.S. a (relatively) low APR fixed rate 30 year mortgage is an amazing way to utilize leverage (only put up ~20% collateral) on an appreciating asset.
Paying $400,000 for a mortgage vs paying $80,000 and 6% over 30 years, but investing the remaining $320,000 in the stock market (returning ~7% after inflation) and your housing payment grows much slower than inflation.
That doesn't mean every mortgage is a good idea, or there aren't circumstances where the borrower ends up losing out, but it's a tool that can be utilized if you learn to understand it.
When I was young I thought the point of a mortgage was to pay it off. A 30 year mortgage made sense to me. It covered the child rearing years, and the prime wage earning years resulting in a paid off home come retirement and empty nesting at the end of that 30 yrs.
A 40 yr mortgage, taken on in your late 20s/early 30s doesn’t get paid off until you’re 70s.
Is the point of a mortgage merely to lock in your cost of housing (but not your property tax in many states) for 40 yrs? And eventually 50? Or 60? Bc screw each up and coming generation, we’re not fixing the problem just can kicking so the game is lock in your costs as soon as possible it’s only going up!
But your mortgage might go down over the course of 30 years. Mine is near 41% less than it was when I got it, because I was able to refinance. The rent for my house would be 4-5x what I'm paying in a mortgage.
How does this impact home prices and the affordability of homes? If I bought my current (US) home on a 5 year mortgage, my payment would have been above $12,000 per month, which seems pretty unapproachable for the majority of buyers. Or is it a 5 year fixed / 25 year variable deal? How does refinancing work under those circumstances?
Certainly a 30 year fixed mortgage is an amazing deal for a homeowner. If the rates go up, you are protected. If they go down, you can refinance into the lower rates, and likely at a better LTV ratio (as you've paid more equity into your home). At this point, with my interest rate, I am better off putting excess cash into a bank account or Treasury bonds than paying my loan faster.
I bought my first house in 1984. Banks were begging you to take out a mortgage and prices were in the tank. I bought the house with 5% down, PMI and a 14 percent, 1 year adjustable mortgage (interest rates were so high they had to go down). When rates went down property values soared and I was able to use the gain to finance most of the purchase of my next house.
My advice is take advantage of the low interest rates if you can. You have to live somewhere and the mortgage payments are a form of forced savings and partially subsidized by the US government.
Real Estate - highly leveraged mortgage with a low, 30-year, fixed interest rate. Keep the payment low enough that you're sure you can afford to hold it. The 30 year mortgage rate is still pretty low, especially compared to current inflation. You win on the equity gain, you win on the inflation, and you win on taxes. (given recent trends, laws, and rates)
Edit: this is not investment advice; I am not qualified to give investment advice.
From the perspective of my European 100 year mortgage, 30 year fixed seems it cuts down the prices in absolute terms which offloads the risk from the buyer a bit. I wish there were laws limiting the length of mortgages to say 10 years. That would mean I had bought my house at 1/10th the price and thus at 1/10th the risk.
But the question is of course is a mortgage seen as someone "paying off" a house, or simply a rent to the bank? I never intended to purchase/repay my house. The 100 year home loan is how I rent and the bank is my landlord. I take a lot of the risk for changes in the market, but also obviously the reward too (unlike a normal rental setup).
I do pay it back (1/100 per year) but obviously my horizon for living in the home isn't 100 years. It's both in mine and my banks interest that my mortgage is kept at some level which is less than "one bad dip below market value", or say 2/3 or 12 of current market value. Once there, I'd rather invest the money than pay back more on the mortgage. Especially if interest rates are (a deductible) 1.5% and low risk investment yields several times that!
From the article:
- A mortgage is a bet on the value of a specific home
- It’s a bet on local real-estate prices
- A mortgage is a bet on interest rates, but it’s an esoteric one
All three make massive assumptions (read the article). For me, there is something much simpler:
- the thirty year mortgage was to lock in housing at a fixed price (barring property taxes and utilities/etc) at a fixed price where I am paying into eventual ownership
The article also ignores the fact that during a period of lowering rates (assuming equity in the house), one can often refi to those lower rates. If the market craters or rates go up, unless one is speculating, it doesn't matter - the rate is locked.
This article spends too much time attacking a mortgage product that applies to pretty much any other mortgage, but those (like X/1 ARM mortgages) have bigger risks.
In reality - one must guage their intent (flip/keep for period of time/never sell) and choose the product accordingly.
Interest is amortized in most mortgages so that this type of analysis on year 0 of homeownership is always going to look very unfavorable owing to the large interest payments in the early years of the mortgage. You have to consider what happens over the life of a 15 or 30 year mortgage to understand the financial benefits of ownership. As the years go by, you will be paying a larger fraction toward principal while inflation has shrunken the real cost of your debt and it feels cheaper to you over time.
If your wages keep up with inflation (say 3% for example), in 10 years you'll be making about 35% more dollars but your housing payment stays the same. If your home value tracks inflation, it will also be up 35% after a decade, but your payment stays the same. And if you're lucky, there may have also been appreciation above inflation. Inflation melts your fixed rate debt and grows the nominal value of your asset, speeding the rate at which you build wealth in the form of home equity.
Over that same period, a renter is certain to have experienced significant increases in their housing costs. They may have saved and invested more than the homeowner over the first few years of homeownership, but as you know this is a long-term game.
I guess it comes down to what form of risk/investing you are most comfortable with and whether you value the intangible lifestyle things like getting to customize things to your liking. Getting to purchase an asset with between 5-33x leverage in the form of low fixed rate debt seems like a pretty unique opportunity for most people who would not be comfortable borrowing for other forms of investment.
In many cases, people getting 40 year mortgages would be better off just continuing to rent. We just bought our first home with 10% down and a 30 year note and we’re now basically paying rent to the bank.
I love the 30 year mortgage. I buy a home I couldn't afford in cash or with a substantially shorter term note, live in the house 2-4 years then sell it for a profit with no prepayment penalty. I've done that 4 times in a row each time being able to buy a house that's perfect for my family's needs at the moment.
The real problems, in my opinion, are (1) people go all-in for their "forever home" only to discover most people don't stay that long, and (2) people view themselves as owners rather than future sellers. Understand your house is a leveraged investment and you'll do well.
Argentinian here, I built my house about 10 years ago with a fixed rate mortgage subsidized by the government. It was subsidized only for people that didn't own a house already. It was a 16 years mortgage. First year I paid about the same as someone renting a house. Past year I was paying about only 10 dollars per month, so I cancelled it :)
But yeah, as far as I know, at the moment there are no fixed rate mortgages.
My parents bought their first home in 1981 with a 30-year fixed rate mortgage of 16% interest. Imagine essentially putting a house on a credit card. They refinanced a few times and just kept plugging away at payments their entire working lives. Seemed fine to me, but I was also a kid and have no idea how much stress they actually went through. This was a $65,000 house with two incomes of about $6/hour each. Not sure how that compares to today's market.
Without mortgage I'd still be paying for rent, possibly forever. My house already appreciated over 30% in 3 years and better investment than keeping the money in the bank or even the best years of the market.
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