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People should really do their homework. Find an online interest calculator and see how much interest you pay over the life of a 30 year loan. Even at these hist

People should really do their homework. Find an online interest calculator and see how much interest you pay over the life of a 30 year loan. Even at these historically low rates it's about double the sticker price. Also look at the amortization schedule. Unless your house appreciates considerably ever year, you will pretty much always sell at a loss when you factor in the interest paid over your time as owner. This is not even including incidental expenses like appliance repair or extra warranties hi might purchase to "protect" you from said incidental costs. In short, from a financial standpoint the math on buying a house with a mortgage never works out in your favor. It's not even close. I am looking at this from a purely mathematical standpoint. I do undere that there are qualitative reasons that owning beats renting; however, I'm sick of hearing people try to make the case that a home is an investment, which is true only if you ignore the interest paid. EDIT: if you did sell early in in the loan you could treat the money lost to interest as an implicit rent. This makes me laugh because you could've just rented in the first place and had the benefit of mobility and avoided the headache of putting a house on the market.

nitrogen 11y ago
Does this take the mortgage writeoff into account? Even if you're effectively paying rent to the bank instead of a landlord, does the writeoff not make up the difference, especially if you sell in the earlier years of the amortization schedule?
- alistproducer2 11y ago
  A write off is worth the amount times your tax rate. This will mitigate the loss but won't come close to eliminating it.
akira2501 11y ago
> Find an online interest calculator and see how much interest you pay over the life of a 30 year loan. Then go to a cost of living calculator to see how much the inflation trend of 30 years minimizes that. The dollars you pay at the start of your loan have much more value than the dollars at the end; it tends to take quite a bit out of the "sticker shock" of just looking at the "total interest paid" column of an amortization schedule.
- alistproducer2 11y ago
  Yeah but the interest is not paid upfront. You don't get the benefit of time value money. Interest laid in year 25 is paid in year 25 dollars. It makes the loss calculation more complex but it does not change the fact that you still paid double for the property (at least) and will,barring a housing bubble, will never come close to recouping that money.
  - hansef 11y ago
    But the COST of the interest is in year 0 dollars. I may be buying Cokes in 2015 dollars, but if the price is set in 1900 dollars I'm getting a shitload more Cokes.
    - alistproducer2 11y ago
      I get what you're saying. If everything arou.d me has gotten more expensive and assuming my wages keep up with inflation, the interest cost is cheaper in later years relative to the earlier years. Makes sense but hasn't wage and inflation growth diverged in the last couple of decades making that assumption a questionable one?
- malchow 11y ago
  This. A smart buyer can leverage up $1m at 3.7% interest, 0.7% real interest after accounting for inflation, even less accounting for the tax efficiency. Cheap money to be able to realize the appreciation of an asset that you simultaneously get to enjoy every day, and that gives your family a feeling of serenity. Headline BLS inflation figures aren't very representative of reality. Bottom line is that if you pick the underlying asset smartly, owning a house is leverage, and leverage increases financial returns. The historical high quality of real property as an asset could change -- a lot of people in my generation think it has. But I suspect it has not.
solipsism 11y ago
A "purely mathematical standpoint" is meaningless without context. You're arguing that paying money for something you need is a bad investment. Paying money for potatoes that I'm going to eat is a bad investment, but I don't have a choice. I have to pay for potatoes and I have to pay for housing. Even your edit, which mentions rent, pretends as if the interest paid and the rent always end up equal. This is clearly not the case. Sometimes it makes more sense to buy, from a "purely mathematical standpoint." The benefit of mobility has a different worth to different people.
- alistproducer2 11y ago
  Housing cost is non discretionary but that's not to say you don't have a choice in how you spend those dollars. All I'm saying is there may be qualitative reasons for buying but financially you are better off renting than buying a home using a mortgage. The whole equation changes if you can buy outright or pay it off in a manner which keeps the total interest paid to something reasonable like 10 or 20%.
  - solipsism 11y ago
    All I'm saying is there may be qualitative reasons for buying but financially you are better off renting than buying a home using a mortgage That's not what you were saying before, you didn't say anything like that. You said "you will pretty much always sell at a loss when you factor in the interest paid over your time as owner", as if losing money overall on your house means it was a poor choice. And if that's what you're saying now, you haven't backed it up. Of course, that's a statement that can't be backed up, because obviously some people are better off getting a mortgage than renting. It depends on all kinds of quantitative reasons that you're ignoring, like average rent in your area vs house prices, cost of living in your area vs other areas, our salary and where your job is located, etc.
    - alistproducer2 11y ago
      >as if losing money overall on your house means it was a poor choice. From a financial standpoint, that does make it a poor choice. Losing money == bad investment. I've been listening to some other commentors on the subject and that has evolved my position a bit. Smart people change their mind when new info/viewpoints become available. >average rent in your area vs house prices, cost of living in your area vs other areas, our salary and where your job is located Rent is pretty much always a function of home price so, again unless there is a qualitative reason (like you have a big family and you need 3-4 bedrooms) renting is going to make more financial sense. You statement on cost of living is wrong. Places where the cost of living is high will have high rents and home prices. My OC was not about comparing the monthly costs of rent vs. buying. It was pretty explicitly about a home not being a good investment when the actual cost (including total interest and incidentals) is factored in. The bottom line is, there are cases where it will make sense to buy. For most people, this is not the case and they buy simply because they are ignoring the actual cost.
hansef 11y ago
But I'm buying a $500k house in 2015 dollars. If we peg the appreciation of the house only to the long-term inflation average of 3.22% over the next 30 years and I purchase the house today at current 30-year fixed rates of 4.09%, I'm going to pay a total of $868,713 over the lifetime of the loan for something which will be worth $1,178,775 (in 2045 dollars). I will have made $310,062 in 2045 dollars, while also having a place to live the whole time. Even if we factor in other costs during that period beyond loan servicing, such as insurance, taxes, utility repairs and maintenance it seems unlikely I will have LOST money in the process. It's not a terribly GOOD investment, but it's not a financially asinine choice either.
- alistproducer2 11y ago
  Good points however 2008 broke the model of perpetual home appreciation. That's not to say your math doesn't work, I would just question the core assumption that makes it hold. I'm deflecting though. Historically what you say holds up.

nitrogen 11y ago

Does this take the mortgage writeoff into account? Even if you're effectively paying rent to the bank instead of a landlord, does the writeoff not make up the difference, especially if you sell in the earlier years of the amortization schedule?

alistproducer2 11y ago
A write off is worth the amount times your tax rate. This will mitigate the loss but won't come close to eliminating it.

akira2501 11y ago

> Find an online interest calculator and see how much interest you pay over the life of a 30 year loan. Then go to a cost of living calculator to see how much the inflation trend of 30 years minimizes that. The dollars you pay at the start of your loan have much more value than the dollars at the end; it tends to take quite a bit out of the "sticker shock" of just looking at the "total interest paid" column of an amortization schedule.

alistproducer2 11y ago
Yeah but the interest is not paid upfront. You don't get the benefit of time value money. Interest laid in year 25 is paid in year 25 dollars. It makes the loss calculation more complex but it does not change the fact that you still paid double for the property (at least) and will,barring a housing bubble, will never come close to recouping that money.
- hansef 11y ago
  But the COST of the interest is in year 0 dollars. I may be buying Cokes in 2015 dollars, but if the price is set in 1900 dollars I'm getting a shitload more Cokes.
  - alistproducer2 11y ago
    I get what you're saying. If everything arou.d me has gotten more expensive and assuming my wages keep up with inflation, the interest cost is cheaper in later years relative to the earlier years. Makes sense but hasn't wage and inflation growth diverged in the last couple of decades making that assumption a questionable one?
malchow 11y ago
This. A smart buyer can leverage up $1m at 3.7% interest, 0.7% real interest after accounting for inflation, even less accounting for the tax efficiency. Cheap money to be able to realize the appreciation of an asset that you simultaneously get to enjoy every day, and that gives your family a feeling of serenity. Headline BLS inflation figures aren't very representative of reality. Bottom line is that if you pick the underlying asset smartly, owning a house is leverage, and leverage increases financial returns. The historical high quality of real property as an asset could change -- a lot of people in my generation think it has. But I suspect it has not.

solipsism 11y ago

A "purely mathematical standpoint" is meaningless without context. You're arguing that paying money for something you need is a bad investment. Paying money for potatoes that I'm going to eat is a bad investment, but I don't have a choice. I have to pay for potatoes and I have to pay for housing. Even your edit, which mentions rent, pretends as if the interest paid and the rent always end up equal. This is clearly not the case. Sometimes it makes more sense to buy, from a "purely mathematical standpoint." The benefit of mobility has a different worth to different people.

alistproducer2 11y ago
Housing cost is non discretionary but that's not to say you don't have a choice in how you spend those dollars. All I'm saying is there may be qualitative reasons for buying but financially you are better off renting than buying a home using a mortgage. The whole equation changes if you can buy outright or pay it off in a manner which keeps the total interest paid to something reasonable like 10 or 20%.
- solipsism 11y ago
  All I'm saying is there may be qualitative reasons for buying but financially you are better off renting than buying a home using a mortgage That's not what you were saying before, you didn't say anything like that. You said "you will pretty much always sell at a loss when you factor in the interest paid over your time as owner", as if losing money overall on your house means it was a poor choice. And if that's what you're saying now, you haven't backed it up. Of course, that's a statement that can't be backed up, because obviously some people are better off getting a mortgage than renting. It depends on all kinds of quantitative reasons that you're ignoring, like average rent in your area vs house prices, cost of living in your area vs other areas, our salary and where your job is located, etc.
  - alistproducer2 11y ago
    >as if losing money overall on your house means it was a poor choice. From a financial standpoint, that does make it a poor choice. Losing money == bad investment. I've been listening to some other commentors on the subject and that has evolved my position a bit. Smart people change their mind when new info/viewpoints become available. >average rent in your area vs house prices, cost of living in your area vs other areas, our salary and where your job is located Rent is pretty much always a function of home price so, again unless there is a qualitative reason (like you have a big family and you need 3-4 bedrooms) renting is going to make more financial sense. You statement on cost of living is wrong. Places where the cost of living is high will have high rents and home prices. My OC was not about comparing the monthly costs of rent vs. buying. It was pretty explicitly about a home not being a good investment when the actual cost (including total interest and incidentals) is factored in. The bottom line is, there are cases where it will make sense to buy. For most people, this is not the case and they buy simply because they are ignoring the actual cost.

hansef 11y ago

But I'm buying a $500k house in 2015 dollars. If we peg the appreciation of the house only to the long-term inflation average of 3.22% over the next 30 years and I purchase the house today at current 30-year fixed rates of 4.09%, I'm going to pay a total of $868,713 over the lifetime of the loan for something which will be worth $1,178,775 (in 2045 dollars). I will have made $310,062 in 2045 dollars, while also having a place to live the whole time. Even if we factor in other costs during that period beyond loan servicing, such as insurance, taxes, utility repairs and maintenance it seems unlikely I will have LOST money in the process. It's not a terribly GOOD investment, but it's not a financially asinine choice either.

alistproducer2 11y ago
Good points however 2008 broke the model of perpetual home appreciation. That's not to say your math doesn't work, I would just question the core assumption that makes it hold. I'm deflecting though. Historically what you say holds up.