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The joy is you get to pay pretty much the same each month for the entire 30 years. Insurance and property taxes will increase but that is fairly small increases. Now go look at what rent was 30 years ago. Imagine paying that today instead. Don't pay off your mortgage early, don't refinance (unless you can drop >1.5%), and ride the long con.
Really, doesn't even take long. When I bought my first place here in Los Angeles, the mortgage was 2.6k, rent 2.2k for comparable places.
Then boom, somehow it's 3.2k rent now and I'm paying 2.6k four years later. That's fucked up, of course, but that's how it works.
Also, long term, pretty much any mortgage is better than renting. You're putting your money into a deep hole instead of a bottomless one.
Don't pay off your mortgage early, don't refinance (unless you can drop >1.5%), and ride the long con.
This is highly dependent upon the math. What is your current interest rate (assuming it is fixed. If you have a variable rate... Oof)? What do you expect inflation to be? What other things could you be doing with your money, and when? How secure do you feel about your current income as opposed to your future income? Are you required to pay for mortgage insurance? For refinancing, what is the new rate and what are the closing costs?
I just hate having debt personally. I want to be free of the pressure that losing my job could lead to me losing my house. And yes, technically with property taxes that can still happen after the house is paid off, but that is a much longer process.
The point was you don't get a mortgage for the savings today. I was using a simple example. The savings tomorrow make the loan interest repayment worthwhile. There are many factors to be considered.
this is what renter's union does to people
Yeah homeowners know this, you're buying into an elaborate pyramid scheme. The interest doesn't matter because you can count on the value of the house to far surpass it.
I'm canadian and our entire economy is based off of an artificially inflated housing market. Almost the entire canada pension fund is invested into REITs and the chance of housing ever going down in value is slim to none. The gov will do whatever possible to prevent that. The entire country could be in shambles and the gov will just keep bailing out homeowners and increasing immigration.
Take out a 30 year mortgage and join the club. If you can't beat em join em.
I have a 30 year mortgage on around $450,000 but my condo has already increased by $50,000 in the last year, but I've only lost about $15000 in interest. In 5 years I should be able to leverage the condo into a $1m house with yard, just outside city limits. I deliberately bought on an island that is insanely desirable and all the land is already spoken for. Eventually a developer will want my acreage and I'll cash out again, and then I'll move somewhere cheap and never work again.
works until it doesnt
Like any pyramid scheme. For now, I don't believe we will see a collapse in 30 years, given the climate crisis
Why would the collapse wait until that much later in the crisis?
Because I live somewhere where the weather is improving with climate change
works until you're poor
Compound interest is a hell of a thing. That being said, $320,000 borrowing cost makes me think this guy is doing a 30 year mortgage with the absolute bare minimum down payment. Don't do that if you don't absolutely have to.
Everything's expensive and no one gets paid enough. Houses are especially expensive, and so is rent which makes it hard to save up. Bare minimum down payment and maximum available down payment assistance is basically the only way to get it done if you're not clearing 6 figures.
I clear 6 figures and still had to borrow $100k from dad. I live in one of the most expensive cities in the world though.
Dad bought his acreage for $38,000 with 19% interest back in 1991 and now it's worth almost $1m. And he never finished school - he only got that acreage because his parents helped him too.
Dude has since leveraged that acreage into an impressive classic car collection and close to $1m stock portfolio, so the money I needed was almost nothing for him.
System seems catered to multi generational families at least where I am. Doesn't seem to matter much how much you make...just need to be born into the right family. I know people who make more than me who are stuck renting, and I know people making half as me with a detached house because their parents have money.
Such is the nature of capitalism. The winners are the ones who were clever enough to be born into generational wealth.
Yeah I'm not proud. When housing market slows, canada runs ad campaigns to entice immigrants to come here who inevitably get burned.
Generational wealth isn't everything though. Lots of broken families. You have to be lucky to be born into money, and also a stable family
Oh trust me, there are plenty of unstable poor families. Quite a few more, it stands to reason. Broken and rich beats broken and poor any day.
You should see what happens in unstable rich families when a matriarch or patriarch dies. The family can become quite poor real fast
You should see what happens when the same thing happens in a family that was already struggling to begin with.
That's why you don't buy a house at first but a small flat. The loan is smaller, the bank receives less.
Once you have paid that off, buy a bigger flat and use the first flat as collateral. The interest rates are better.
The Oxford English Dictionary traces use of the phrase "property ladder" back to 1941 in the journal Eugenics.
Interesting
https://www.bankrate.com/mortgages/historical-mortgage-rates/
About where it should be, really. The kicker is that prices went way up when rates were so low for so long, anf prices are sticky.
Grandparents in the 70s were paying like 12 or 15 percent.
Well, no, because the 300k go to the owner of the house. And your house after 30 years is hopefully worth much more than 300k. But I understand your point. It's pretty nuts when you think of it like that.
You need $300,000 for a house
If you have $300,000 you can just buy the house like you do anything else. One big lump payment and it's yours
But you don't have $300,000
So you go to someone that does. It could be anyone. A friend, a neighbor. A celebrity. Mr Beast. Probably the Bank though. And you say, "can you give me $300,000?"
If it's a friend or a celebrity or Mr Beast, maybe they just give you the money. You now have $300,000 and you can buy the house like you do anything else. Just give them the money and the house is yours
Probably you had to ask a bank
The bank does have $300,000 but it's not really their money. They're taking a few dollars from everyone who keeps money in their bank and they're investing it; they keep the profit and that's how banks make money (in simple terms). So the bank will say, "We will loan you $300,000 but you'll need to pay us back plus interest"
How much interest?
That depends on the government
You agree, or not, up to you. In this case, maybe you agree. The bank gives you $300,000. You buy the house. You own the house, except now you have to pay the bank back, plus interest, for the $300,000 loan they gave you
So while it is your house, the bank is holding on to the house so they can sell it in case you don't pay them back.
Remember, they didn't load you their money, they loaned you money that they took from everybody else bank account. If you default, other people lost money and the bank can't have that, so they'll sell your house to get that money back.
So you pay the bank, plus interest, per your agreement
This isn't crazy, it's how pretty much every loan works.
If you can pay off the house in 6 months, great. You didn't pay that much interest. Pay it off over 15 years, you paid a bit more interest. How much interest depends on the size of the loan, the interest rate, and how long you took to pay it back
This has been finance and loans 101
You lost me at Mr. Beast
Money now > money thirty years from now.
nty my personal discount rate says i’ll wait