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Savings is for a down payment. Then you pay mortgages on the house and any savings are much better to keep (retirement, buffer, ..). If I were to save to buy my

Savings is for a down payment. Then you pay mortgages on the house and any savings are much better to keep (retirement, buffer, ..). If I were to save to buy my house (€800K) I'd certainly not be living in it before the kids move out, at which point I no longer need a house. The price of a house on the market has a pretty simple formula: it's what two incomes can pay per month times the interest rate they expect over some horizon, and the expected monthly pyament of the principal (if any). Where I live, I can stop paying back the loan when the loan is under 70% the valuation of the house, so it's then interest-only after that. And of course there are better uses of money than paying a mortgage: in recent history the stock market has been booming while my mortgage is under 1.5%. Whenever I have €1K lying around, I'd certainly not want to pay back 0.1% of my mortgage when I can save it instead.

jcbrand 6y ago
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. Why bother?
- alkonaut 6y ago
  > 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.
  - llampx 6y ago
    Interest is not deductible in Germany., Unlike the US.
    - pmh 6y ago
      Since the tax changes in 2017, it's effectively not deductible in the US for most
    - alkonaut 6y ago
      Yes I’m sure I would have a completely different calculation if I was in Germany.
- flukus 6y ago
  Rents increase with inflation, a mortgage doesn't. I have a few older friends kicking themselves for not buying a property when they could afford it, rents have risen and there is a very real prospect that they will have to move out of the community they spent their lives in.
  - allendoerfer 6y ago
    Mortages do increase with faster growing inflation, though, once the central bank reacts and increases the interest rates. Of course you can negotiate a fixed interest rate for some time period. So there are two buffers in between.
  - indemnity 6y ago
    Not to mention, if you live in any Western country, real estate capital gains since 2010 have been immense, so interest-only mortgages could have made sense.
jgwil2 6y ago
But you can't live in your stocks.
- alkonaut 6y ago
  Exactly. So you live in the house. The question is whether a €1k should be saved or invested or paid towards the house so you leave it (after say 10-20 years) with 50% loans instead of 70%?
imtringued 6y ago
Sure the market says you should put the money into stocks, but from a risk perspective this is not meaningfully different from paying off your mortgage and then borrowing money at an incredibly low interest rate for the sake of buying stocks. It's still trading on margin. If you must do this, then don't use the money on moonshots and pick something with low volatility.
- alkonaut 6y ago
  If course, but there is little chance to borrow money without security at 1% as the mortgage interest is and it’s currently trivial to beat. There are literally savings accounts with interest rate over my mortgage interest, meaning there is a zero risk arbitrage opportunity. Even if you don’t invest it, if you have other credit (car, credit cards) obviously paying those first is always a better choice too.
  - speedplane 6y ago
    > There are literally savings accounts with interest rate over my mortgage interest, meaning there is a zero risk arbitrage opportunity. Many utilities give an 8-9% interest rate on bonds, with very little risk (Comcast isn't going bankrupt soon). That said, there's no such thing as zero-risk arbitrage.
    - alkonaut 6y ago
      When the savings are state guaranteed in the savings account, the risk is basically limited by the credit rating of the nation. It’s never zero but for stable economies it’s as low as you get

jcbrand 6y ago

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. Why bother?

alkonaut 6y ago
> 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.
- llampx 6y ago
  Interest is not deductible in Germany., Unlike the US.
  - pmh 6y ago
    Since the tax changes in 2017, it's effectively not deductible in the US for most
  - alkonaut 6y ago
    Yes I’m sure I would have a completely different calculation if I was in Germany.
flukus 6y ago
Rents increase with inflation, a mortgage doesn't. I have a few older friends kicking themselves for not buying a property when they could afford it, rents have risen and there is a very real prospect that they will have to move out of the community they spent their lives in.
- allendoerfer 6y ago
  Mortages do increase with faster growing inflation, though, once the central bank reacts and increases the interest rates. Of course you can negotiate a fixed interest rate for some time period. So there are two buffers in between.
- indemnity 6y ago
  Not to mention, if you live in any Western country, real estate capital gains since 2010 have been immense, so interest-only mortgages could have made sense.

jgwil2 6y ago

But you can't live in your stocks.

alkonaut 6y ago
Exactly. So you live in the house. The question is whether a €1k should be saved or invested or paid towards the house so you leave it (after say 10-20 years) with 50% loans instead of 70%?

imtringued 6y ago

Sure the market says you should put the money into stocks, but from a risk perspective this is not meaningfully different from paying off your mortgage and then borrowing money at an incredibly low interest rate for the sake of buying stocks. It's still trading on margin. If you must do this, then don't use the money on moonshots and pick something with low volatility.

alkonaut 6y ago
If course, but there is little chance to borrow money without security at 1% as the mortgage interest is and it’s currently trivial to beat. There are literally savings accounts with interest rate over my mortgage interest, meaning there is a zero risk arbitrage opportunity. Even if you don’t invest it, if you have other credit (car, credit cards) obviously paying those first is always a better choice too.
- speedplane 6y ago
  > There are literally savings accounts with interest rate over my mortgage interest, meaning there is a zero risk arbitrage opportunity. Many utilities give an 8-9% interest rate on bonds, with very little risk (Comcast isn't going bankrupt soon). That said, there's no such thing as zero-risk arbitrage.
  - alkonaut 6y ago
    When the savings are state guaranteed in the savings account, the risk is basically limited by the credit rating of the nation. It’s never zero but for stable economies it’s as low as you get