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I'm paying $2500/month mortgage for a home valued at $1.1m. For the extra $500/month, I get: mortgage interest tax deduction, a house after 30 years, the freedo

I'm paying $2500/month mortgage for a home valued at $1.1m. For the extra $500/month, I get: mortgage interest tax deduction, a house after 30 years, the freedom to modify my home the way I like, the security of knowing I'm not at the mercy of the landlord. Personally, I think for the extra $500/month, buying is a better choice than renting; at least for me.

jjnoakes 5y ago
The main difference is your mortgage was likely acquired long before the value reached that level. The choice was never between renting and buying a $1m home for a $500/mo difference.
hn_throwaway_99 5y ago
I'm assuming your property taxes are not $0?? I don't know where you live but in Texas property taxes on a $1.1 million home are about $2,300 a month
- CoastalCoder 5y ago
  In the U.S. at least, property taxes are normally treated as part of the mortgage payment. They're not technically part of the mortgage payment, but they're a line-item in your monthly payment to the lender.
  - ryandrake 5y ago
    Not that I’ve seen. Maybe it’s regional. I’ve always paid my property taxes directly to the county. Once a year when I was in FL, two installments in CA. The lender just takes principal and interest in its payment.
  - brobinson 5y ago
    Escrow for property tax is (usually) _optional_ on a mortgage. I don't have escrow on mine because I heard horror stories from coworkers about payments getting screwed up when the mortgage was resold.
    - OldHand2018 5y ago
      From the lender point of view, property tax escrow is slightly less risky than leaving it up to the borrower. If you work with a mortgage broker and get quotes, ask for the rates with and without escrow. It’s pretty common that there is a slight reduction in rate if you include escrow.
  - hn_throwaway_99 5y ago
    That's not really true. I've had mortgages for most of my adult life and have never paid property tax escrow. Most lenders only require it if you put little down. Not to mention there are some popular tax strategies (e.g. pay taxes for two years in a single calendar year, then nothing for the next year) that make paying escrow a bad idea.
- flatiron 5y ago
  I thought NJ was bad! I pay $18k a year for a 1.1 million house (assessed at $950k though). Sending three kids to public school though so I make out and then I’m outta here!
  - hn_throwaway_99 5y ago
    In fairness Texas property taxes are high because there is no state income tax.
- rconti 5y ago
  It's 1-1.1% in most places in CA, and can grow by a max of 2% per year. The parent who deceptively advertised a much lower mortgage payment than would make sense given the current value, is probably paying around $10k/yr.
xur17 5y ago
Buying very well might be a better option for you, but there are downside you aren't listing from owning: * high transactions costs (if you decide to move after a few years, say goodbye to all of those savings) * lower liquidity (if you rent, you can just call the landlord and break the lease. if you buy, you have to find an agent, stage the house, and wait for offers) * highly concentrated market risks
- noodle 5y ago
  Most regular non-trivial maintenance is also on your plate as a homeowner. Need a new roof? That's on you, and isn't reflected in the standard monthly payment. If you rent, its on the property owner.
cammikebrown 5y ago
How big was your down payment?
ska 5y ago
> Personally, I think for the extra $500/month, buying is a better choice than renting; at least for me. Let's do the math. Nobody is getting a 1.1million mortgage for 3k/mo, so let's pick something conservative but more realistic. According to zillow, for a 3k/mo payment you can get a 520k loan with a 20% (130k) downpayment, 30 years with an average 3%. You'll be lucky to keep it to 3% for the next 30 years but we'll let that stay. This 3k/mo payment includes estimated property taxes etc., but no home maintenance costs - there's going to be 50k or so of that over the 30 years. So after 30 years, you've got a 650k house + whatever appreciation it has over that time, minus the 50k expenses. Historically house appreciation is about the same as inflation, so if we stay in today dollars that washes out. After 30 years, you walk away with 600k (todays dollars). If we pretend it won't cost you anything extra, 650k What if you stayed renting and invest that 130k? Stock market long term average is about 7%, net inflation about 4%. So lets use that, I'm cheating by stating in 2021 dollars and you just keep investing the $500/mo difference. Take 130k today, invest for 3% with a 500/mo contribution for 30 years. Result is: $601,000 (again, sticking in today dollars as i've zeroed out inflation) Do the same thing at 4%: $760k Base on historic market, you're likely somewhere in between. Looks like it's not a huge difference, which shouldn't surprise you. This means that pretty minor differences in your life circumstances can push you one way or another, but nothing is obviously compelling. (Ok one thing jurisdictionally dependent I didn't mention, there can be tax implications of this or not, depending on where you live. Ymmv.)
- random314 5y ago
  30 year fixed mortgage rates for good credit is 2.5%
- x3n0ph3n3 5y ago
  You totally left out property taxes! $1.1 million house in SF has about $6,050 in year property tax, which is another $182k over the life of the mortgage (assuming rates don't change).
  - ska 5y ago
    No I didn't, see the comment that the property tax was rolled into the 3k payment. I've added "property" to make that clearer.
neltnerb 5y ago
This is super deceptive. If you had actually needed to pay $1.1M in principal even at 0% interest over 30 years you'd be paying $2777 a month. Your comment comes across as basically suggesting it is other people's fault for not buying a house when it cost half as much as it does now versus renting a house now. I bet you bought that house fifteen years ago at least right?
- random314 5y ago
  You get there by refinancing to extend the loan and lower interest. It's not deceptive at all.
  - neltnerb 5y ago
    Yeah, I've owned a house for fifteen years. I know how this works. Saying your house is worth $1.1M now and you only have to pay a mortgage of 2500 a month completely ignores that you purchased it at a different price, or at least have put a substantial amount of capital into it so that your mortgage is certainly not covering $1.1M worth of principal. I'm saying this is deceptive because that is not what people think of when they are comparing renting with buying. You're comparing renting today versus buying over a decade ago and getting lucky about the property value going up and being lucky about being able to afford to get a mortgage in the first place. It's just not a nice thing to argue. I pay a lower "rent" than my friends who rent. At first I was paying much more than my peers, now I'm paying half as much. But most of them would happily go back in time and do the same versus paying rent now, that's just not possible, not to mention that they're often too young for it to have been financially possible for them to do it when I bought my house. It is really unreasonable to suggest that someone now magically get themselves into a long term mortgage taken out a decade prior as if that's merely a $500 monthly premium. It's time travel or luck.
  - imtringued 5y ago
    If you did this today, you have to refinance at a higher interest rate in the future. That's why it's deceptive.
    - 5y ago

jjnoakes 5y ago

The main difference is your mortgage was likely acquired long before the value reached that level. The choice was never between renting and buying a $1m home for a $500/mo difference.

hn_throwaway_99 5y ago

I'm assuming your property taxes are not $0?? I don't know where you live but in Texas property taxes on a $1.1 million home are about $2,300 a month

CoastalCoder 5y ago
In the U.S. at least, property taxes are normally treated as part of the mortgage payment. They're not technically part of the mortgage payment, but they're a line-item in your monthly payment to the lender.
- ryandrake 5y ago
  Not that I’ve seen. Maybe it’s regional. I’ve always paid my property taxes directly to the county. Once a year when I was in FL, two installments in CA. The lender just takes principal and interest in its payment.
- brobinson 5y ago
  Escrow for property tax is (usually) _optional_ on a mortgage. I don't have escrow on mine because I heard horror stories from coworkers about payments getting screwed up when the mortgage was resold.
  - OldHand2018 5y ago
    From the lender point of view, property tax escrow is slightly less risky than leaving it up to the borrower. If you work with a mortgage broker and get quotes, ask for the rates with and without escrow. It’s pretty common that there is a slight reduction in rate if you include escrow.
- hn_throwaway_99 5y ago
  That's not really true. I've had mortgages for most of my adult life and have never paid property tax escrow. Most lenders only require it if you put little down. Not to mention there are some popular tax strategies (e.g. pay taxes for two years in a single calendar year, then nothing for the next year) that make paying escrow a bad idea.
flatiron 5y ago
I thought NJ was bad! I pay $18k a year for a 1.1 million house (assessed at $950k though). Sending three kids to public school though so I make out and then I’m outta here!
- hn_throwaway_99 5y ago
  In fairness Texas property taxes are high because there is no state income tax.
rconti 5y ago
It's 1-1.1% in most places in CA, and can grow by a max of 2% per year. The parent who deceptively advertised a much lower mortgage payment than would make sense given the current value, is probably paying around $10k/yr.

xur17 5y ago

Buying very well might be a better option for you, but there are downside you aren't listing from owning: * high transactions costs (if you decide to move after a few years, say goodbye to all of those savings) * lower liquidity (if you rent, you can just call the landlord and break the lease. if you buy, you have to find an agent, stage the house, and wait for offers) * highly concentrated market risks

noodle 5y ago
Most regular non-trivial maintenance is also on your plate as a homeowner. Need a new roof? That's on you, and isn't reflected in the standard monthly payment. If you rent, its on the property owner.

cammikebrown 5y ago

How big was your down payment?

ska 5y ago

> Personally, I think for the extra $500/month, buying is a better choice than renting; at least for me. Let's do the math. Nobody is getting a 1.1million mortgage for 3k/mo, so let's pick something conservative but more realistic. According to zillow, for a 3k/mo payment you can get a 520k loan with a 20% (130k) downpayment, 30 years with an average 3%. You'll be lucky to keep it to 3% for the next 30 years but we'll let that stay. This 3k/mo payment includes estimated property taxes etc., but no home maintenance costs - there's going to be 50k or so of that over the 30 years. So after 30 years, you've got a 650k house + whatever appreciation it has over that time, minus the 50k expenses. Historically house appreciation is about the same as inflation, so if we stay in today dollars that washes out. After 30 years, you walk away with 600k (todays dollars). If we pretend it won't cost you anything extra, 650k What if you stayed renting and invest that 130k? Stock market long term average is about 7%, net inflation about 4%. So lets use that, I'm cheating by stating in 2021 dollars and you just keep investing the $500/mo difference. Take 130k today, invest for 3% with a 500/mo contribution for 30 years. Result is: $601,000 (again, sticking in today dollars as i've zeroed out inflation) Do the same thing at 4%: $760k Base on historic market, you're likely somewhere in between. Looks like it's not a huge difference, which shouldn't surprise you. This means that pretty minor differences in your life circumstances can push you one way or another, but nothing is obviously compelling. (Ok one thing jurisdictionally dependent I didn't mention, there can be tax implications of this or not, depending on where you live. Ymmv.)

random314 5y ago
30 year fixed mortgage rates for good credit is 2.5%
x3n0ph3n3 5y ago
You totally left out property taxes! $1.1 million house in SF has about $6,050 in year property tax, which is another $182k over the life of the mortgage (assuming rates don't change).
- ska 5y ago
  No I didn't, see the comment that the property tax was rolled into the 3k payment. I've added "property" to make that clearer.

neltnerb 5y ago

This is super deceptive. If you had actually needed to pay $1.1M in principal even at 0% interest over 30 years you'd be paying $2777 a month. Your comment comes across as basically suggesting it is other people's fault for not buying a house when it cost half as much as it does now versus renting a house now. I bet you bought that house fifteen years ago at least right?

random314 5y ago
You get there by refinancing to extend the loan and lower interest. It's not deceptive at all.
- neltnerb 5y ago
  Yeah, I've owned a house for fifteen years. I know how this works. Saying your house is worth $1.1M now and you only have to pay a mortgage of 2500 a month completely ignores that you purchased it at a different price, or at least have put a substantial amount of capital into it so that your mortgage is certainly not covering $1.1M worth of principal. I'm saying this is deceptive because that is not what people think of when they are comparing renting with buying. You're comparing renting today versus buying over a decade ago and getting lucky about the property value going up and being lucky about being able to afford to get a mortgage in the first place. It's just not a nice thing to argue. I pay a lower "rent" than my friends who rent. At first I was paying much more than my peers, now I'm paying half as much. But most of them would happily go back in time and do the same versus paying rent now, that's just not possible, not to mention that they're often too young for it to have been financially possible for them to do it when I bought my house. It is really unreasonable to suggest that someone now magically get themselves into a long term mortgage taken out a decade prior as if that's merely a $500 monthly premium. It's time travel or luck.
- imtringued 5y ago
  If you did this today, you have to refinance at a higher interest rate in the future. That's why it's deceptive.
  - 5y ago