3 ms·

> A more relevant metric to consider - monthly mortgage payment to monthly income ratio. I find this attitude baffling. If you bought a car or a phone and paid

> A more relevant metric to consider - monthly mortgage payment to monthly income ratio. I find this attitude baffling. If you bought a car or a phone and paid in monthly installments, you would want to know for how long you'll be paying, not just the monthly amount. Why is a mortgage different? Is it the duration, where your brain sees 20-30 years, and substitutes that with "forever"? How would you feel if, after 30 years, when you thought you finally paid off your mortgage, the bank would say "Oh actually you have to keep paying for another 30 years"?

mikeryan 5y ago
The point is that you have more purchasing power with lower income rates. In this example you can buy a house worth 25% more. Pretty much all home buying decisions are normalized on a 30 year fixed mortgage. When figuring out what you can spend its easier to figure out what you can afford per month ans extrapolate your purchase price from there. For that matter most car buying decisions are done the same way based on a five year loan (maybe seven these days).
potatolicious 5y ago
The duration of the loan doesn't change based on the interest rate. In both of OP's examples the hypothetical borrower pays the same amount per month, for the same number of months. A lower interest rate does not affect the duration of the loan. In neither case can the bank simply extend the duration of your loan.
dzabriskie 5y ago
Because the alternative is usually renting, where the monthly expense is similar, but there is no principal down or asset appreciation.
XorNot 5y ago
Generally because the point at which you stop requiring shelter is because you're dead - so forever is a good proxy. You can do this with all your purchases though: anytime you buy anything, don't look at the sticker price - figure out the equivalent monthly cost for the expected lifetime of the item. This can have a dramatic impact on your purchasing habits.
- chuckee 5y ago
  You're confusing two different things: -The purchase price of an item (that happens to be paid in monthly installments) -The monthly cost of owning an item, expressed as price/lifetime (looking only at purchase price, and ignoring maintenance etc.) For example, if you pay for a car in 96 monthly payments, that does not mean the car will last 96 months. And the car definitely won't last longer if the number of payments is increased to 192.
tharkun__ 5y ago
While I completely agree with you that any sane person _should_ want to know the final price and make decisions based on that, a lot of people actually don't and they only look at what they will pay per month/week for something. I personally know multiple people that do this and like you I can't fathom why but they do. '"Need" a new couch? How much does it cost me per month? Oh yeah I can afford that.' Nevermind that the couch they don't really need (but want) costs them way more and they will very probably need/want a new one before this one is paid off. Same with cars and many many other items. Sellers perpetuate this, especially on bigger ticket items. I suppose it's a "natural progression". People can't afford the item they want. Sellers have no more buyers. But if you sell it to them with a loan and a small monthly payment, suddenly the buyers can afford it. How do you think 96 month car loans came about?

mikeryan 5y ago

The point is that you have more purchasing power with lower income rates. In this example you can buy a house worth 25% more. Pretty much all home buying decisions are normalized on a 30 year fixed mortgage. When figuring out what you can spend its easier to figure out what you can afford per month ans extrapolate your purchase price from there. For that matter most car buying decisions are done the same way based on a five year loan (maybe seven these days).

potatolicious 5y ago

The duration of the loan doesn't change based on the interest rate. In both of OP's examples the hypothetical borrower pays the same amount per month, for the same number of months. A lower interest rate does not affect the duration of the loan. In neither case can the bank simply extend the duration of your loan.

dzabriskie 5y ago

Because the alternative is usually renting, where the monthly expense is similar, but there is no principal down or asset appreciation.

XorNot 5y ago

Generally because the point at which you stop requiring shelter is because you're dead - so forever is a good proxy. You can do this with all your purchases though: anytime you buy anything, don't look at the sticker price - figure out the equivalent monthly cost for the expected lifetime of the item. This can have a dramatic impact on your purchasing habits.

chuckee 5y ago
You're confusing two different things: -The purchase price of an item (that happens to be paid in monthly installments) -The monthly cost of owning an item, expressed as price/lifetime (looking only at purchase price, and ignoring maintenance etc.) For example, if you pay for a car in 96 monthly payments, that does not mean the car will last 96 months. And the car definitely won't last longer if the number of payments is increased to 192.

tharkun__ 5y ago

While I completely agree with you that any sane person _should_ want to know the final price and make decisions based on that, a lot of people actually don't and they only look at what they will pay per month/week for something. I personally know multiple people that do this and like you I can't fathom why but they do. '"Need" a new couch? How much does it cost me per month? Oh yeah I can afford that.' Nevermind that the couch they don't really need (but want) costs them way more and they will very probably need/want a new one before this one is paid off. Same with cars and many many other items. Sellers perpetuate this, especially on bigger ticket items. I suppose it's a "natural progression". People can't afford the item they want. Sellers have no more buyers. But if you sell it to them with a loan and a small monthly payment, suddenly the buyers can afford it. How do you think 96 month car loans came about?