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Buying a home mortgage is signing yourself over to a lifetime of servitude and uncertainty if you lose your income stream. Buy a property out of pocket to live

Buying a home mortgage is signing yourself over to a lifetime of servitude and uncertainty if you lose your income stream. Buy a property out of pocket to live in and make the most of a DIY life at a fraction of the cost and an odd stress differential, or just keep renting and be agile enough to roll with the punches.

londons_explore 4y ago
Compare each strategy for each decade over the past 100 years... By a substantial margin, having a large home mortgage leaves you in a better financial position the vast majority of the decades, even if you lose your job and are forced to sell mid decade.
- deleted 4y ago
  [deleted]
kortilla 4y ago
Getting a mortgage is the easiest way to build wealth through government subsidized leverage (mortgage interest deduction).
- JetAlone 4y ago
  There are 3 good replies to this one giving a decent analysis for why I might want to reconsider my position. It's hard to pick which one to answer to. Would you say that mortgage is probably driven down 8% because just can't afford the down payment anymore, or people like me who seem to have an irrational aversion to it?
  - ilikehurdles 4y ago
    Is 8% referring to Rocket Mortgage layoffs? Over the last two or so years, mortgage rates hit historic lows, which meant the demand for cheap mortgages increased significantly, both from people wanting to enter the market and those refinancing. Consider that the $500k mortgage that would have cost $2300/mo in 2019 suddenly costs like $1600/mo in 2021. Absolutely I jumped on that train, as many others did. Lenders were overwhelmed and had to hire a lot to meet this demand. If you missed that window, well rates are above what they were pre-pandemic, looking back at least a decade, so refinancing for lower payments no longer makes sense for most borrowers. People still are buying homes, but high prices and that disappeared “once-in-a-lifetime deal” are going to suppress demand.
    - JetAlone 4y ago
      It wasn't the right time to buy for me, for a handful of reasons, got no resentfulness over it. I don't know what my local market is like, or is going to be like.
      - bombcar 4y ago
        The "right time to buy" is way more important based on your personal circumstances than almost any other consideration. Until you're sure you want to be in the same area for 10+ years, I wouldn't even bother considering buying, let alone determining which house you want to live in for 10+ years. Which is why you often see houses being purchased by new families, the kids are the first thing that really begins to put down roots (as you don't want to move them from their school/friends).
- ferdowsi 4y ago
  After the 2017 tax reform bill, itemizing deductions is not cost effective for the vast majority of Americans.
  - lotsofpulp 4y ago
    Vast majority being 90% according to IRS statistics. It seems it will take some time for the myth of the effects of the mortgage interest tax deductions to die down. It is also capped at $750k of mortgage debt, which is not much for the 10% of filers who are itemizing and using the deduction.
    - mrep 4y ago
      If you are single it can definitely help. My deduction was 25k between SALT and the mortgage interest deduction vs 12,400 for the standard.
  - thebean11 4y ago
    I wonder how the numbers look if you only look at Americans with mortgages though?
- Sohcahtoa82 4y ago
  First off, it's a deduction, not a credit. You're still spending money. Second, your mortgage interest (plus other deductions) need to be high enough to warrant itemizing deductions. At the start of 2021, my mortgage balance was $270K with a rate of 2.275%. Even including a $7,000 donation to charity, it wasn't enough for my wife and I to itemize. That said, it's much better to mortgage than pay cash for reasons outlined already in this thread.
  - kortilla 4y ago
    > First off, it's a deduction, not a credit I literally said “deduction”. Who did you think you were replying to?
makerofthings 4y ago
I started buying a house 15 years ago. I have moved twice since and now live in a nice house that I have paid off fully, I overpaid as much as possible. Maintainance is easy. Now and then something breaks and I pay someone to fix it. This has given me enormous peace of mind.
cascom 4y ago
Only if your savings are not robust enough to bridge you to replacing that income stream or you think home prices will be in a secular decline
streblo 4y ago
Most people don't do the math and realize that over a long enough time horizon a 30 year fixed mortgage will cost you less than purchasing the home outright. This assumes you take the money you would have sunk into the home and instead invest it at a higher rate of return, which is an option available to most home owners.
- ssharp 4y ago
  Well most people aren't going to take the money and invest it at a higher rate of return, either. With 30-year rates around 6% right now, the math becomes a lot tighter as well. Where are you going to find 6%+ investments right now?
  - xwdv 4y ago
    You don’t actually have to invest at all. Over time inflation makes your payments cheaper and cheaper. By the time you reach the end of your 30 year fixed mortgaged in the year 2052 you’re still paying in 2022 dollars which is probably less than half of what the average mortgage in 2052 is. If you invest on top of that and get some small decent return you come out even more on top.
    - mtlynch 4y ago
      But if the situation is that in 2022, you have enough cash to buy a house outright or get a mortgage and invest your cash, you still do have to invest your cash to benefit from the mortgage. If I have $300k in cash today, and I want to buy a $300k house, then I can get a mortgage and let inflation shrink my mortgage payments, but it's also shrinking the $300k I have in cash. I don't see how you can profit from the mortgage unless you find an investment for your cash with yields significantly higher than your mortgage interest rate.
      - foobarian 4y ago
        Index fund: VOO, FXAIX, etc.
      - 4y ago
j4yav 4y ago
How do you avoid the servitude and uncertainty by renting instead? Aren’t you still dependent on an income stream to pay rent without being kicked out?
rco8786 4y ago
This is objectively false. The vast, vast majority of homeowners do not foreclose ever. It’s no more “servitude” than paying the person who holds the note to rent from them instead of holding the note directly. You’re responsible for maintenance and upgrades. And it’s harder to move to a new place if you own vs rent. These things are true. But “lifetime of servitude” is comically hyperbolic and ignores all the positives of homeownership that historically vastly outweigh those negatives.
- JetAlone 4y ago
  I think you have a good point, thank you. I'm willing to be wrong here.
nemo44x 4y ago
Paying cash in a low interest world is a bad strategy for a number of reasons. 1) The cash is better used to diversify across other investments. These investments will likely out-earn the mortgage interest. 2) The government gives you tax write offs for mortgage interest. Not as beneficial for everyone as it used to be but there’s a good chance you will be able to deduct if your mortgage is in a high cost of living area. Up to $750k in mortgage debt. 3) A home is an illiquid asset. By borrowing the money and keeping your own money in liquid assets you gain flexibility and can jump on good opportunities. Agreed though that having tons of runway is wise.
deleted 4y ago
[deleted]
snarf21 4y ago
I disagree completely. You are trading risks and the government protects you in buying. The big problem is that people want to buy a 5 BR / 4 Bath that is the max they can afford so they do get stuck in that cycle. I didn't grow up poor by any means but today's kids need a 12x12 BR and sometimes on suite. We had 2 bunk beds and four teenage boys in a 10x10. People would be better served by buying the cheapest and smallest house that will actually function for them, make small upgrades over time and then play the upgrade game. Doing so by only moving to a bigger and nicer house when they can keep their payment and mortgage end date the same. You can't control rent prices any more than you can employment. At least with buying, you will likely have some appreciation eventually. The government gives you back the interest you pay. You have an asset you can borrow against in bad times. You are paying the future's housing bill at today's prices. Inflation is your fried after you have bought your house. A house is the best way 90% of Americans have to build equity. Additionally, with all the NIMBYism everywhere, the likelihood of appreciation is almost guaranteed (outside of dead towns)
- bombcar 4y ago
  There's a simple proof that the upgrade game is the way to go. 1. All remodels lose money, except MAYBE a minor kitchen remodel. 2. Ergo, if you buy a house that was remodeled, you win. 3. Ergo, upgrade instead of add-on, so start small and buy up.

londons_explore 4y ago

Compare each strategy for each decade over the past 100 years... By a substantial margin, having a large home mortgage leaves you in a better financial position the vast majority of the decades, even if you lose your job and are forced to sell mid decade.

deleted 4y ago
[deleted]

kortilla 4y ago

Getting a mortgage is the easiest way to build wealth through government subsidized leverage (mortgage interest deduction).

JetAlone 4y ago
There are 3 good replies to this one giving a decent analysis for why I might want to reconsider my position. It's hard to pick which one to answer to. Would you say that mortgage is probably driven down 8% because just can't afford the down payment anymore, or people like me who seem to have an irrational aversion to it?
- ilikehurdles 4y ago
  Is 8% referring to Rocket Mortgage layoffs? Over the last two or so years, mortgage rates hit historic lows, which meant the demand for cheap mortgages increased significantly, both from people wanting to enter the market and those refinancing. Consider that the $500k mortgage that would have cost $2300/mo in 2019 suddenly costs like $1600/mo in 2021. Absolutely I jumped on that train, as many others did. Lenders were overwhelmed and had to hire a lot to meet this demand. If you missed that window, well rates are above what they were pre-pandemic, looking back at least a decade, so refinancing for lower payments no longer makes sense for most borrowers. People still are buying homes, but high prices and that disappeared “once-in-a-lifetime deal” are going to suppress demand.
  - JetAlone 4y ago
    It wasn't the right time to buy for me, for a handful of reasons, got no resentfulness over it. I don't know what my local market is like, or is going to be like.
    - bombcar 4y ago
      The "right time to buy" is way more important based on your personal circumstances than almost any other consideration. Until you're sure you want to be in the same area for 10+ years, I wouldn't even bother considering buying, let alone determining which house you want to live in for 10+ years. Which is why you often see houses being purchased by new families, the kids are the first thing that really begins to put down roots (as you don't want to move them from their school/friends).
ferdowsi 4y ago
After the 2017 tax reform bill, itemizing deductions is not cost effective for the vast majority of Americans.
- lotsofpulp 4y ago
  Vast majority being 90% according to IRS statistics. It seems it will take some time for the myth of the effects of the mortgage interest tax deductions to die down. It is also capped at $750k of mortgage debt, which is not much for the 10% of filers who are itemizing and using the deduction.
  - mrep 4y ago
    If you are single it can definitely help. My deduction was 25k between SALT and the mortgage interest deduction vs 12,400 for the standard.
- thebean11 4y ago
  I wonder how the numbers look if you only look at Americans with mortgages though?
Sohcahtoa82 4y ago
First off, it's a deduction, not a credit. You're still spending money. Second, your mortgage interest (plus other deductions) need to be high enough to warrant itemizing deductions. At the start of 2021, my mortgage balance was $270K with a rate of 2.275%. Even including a $7,000 donation to charity, it wasn't enough for my wife and I to itemize. That said, it's much better to mortgage than pay cash for reasons outlined already in this thread.
- kortilla 4y ago
  > First off, it's a deduction, not a credit I literally said “deduction”. Who did you think you were replying to?

makerofthings 4y ago

I started buying a house 15 years ago. I have moved twice since and now live in a nice house that I have paid off fully, I overpaid as much as possible. Maintainance is easy. Now and then something breaks and I pay someone to fix it. This has given me enormous peace of mind.

cascom 4y ago

Only if your savings are not robust enough to bridge you to replacing that income stream or you think home prices will be in a secular decline

streblo 4y ago

Most people don't do the math and realize that over a long enough time horizon a 30 year fixed mortgage will cost you less than purchasing the home outright. This assumes you take the money you would have sunk into the home and instead invest it at a higher rate of return, which is an option available to most home owners.

ssharp 4y ago
Well most people aren't going to take the money and invest it at a higher rate of return, either. With 30-year rates around 6% right now, the math becomes a lot tighter as well. Where are you going to find 6%+ investments right now?
- xwdv 4y ago
  You don’t actually have to invest at all. Over time inflation makes your payments cheaper and cheaper. By the time you reach the end of your 30 year fixed mortgaged in the year 2052 you’re still paying in 2022 dollars which is probably less than half of what the average mortgage in 2052 is. If you invest on top of that and get some small decent return you come out even more on top.
  - mtlynch 4y ago
    But if the situation is that in 2022, you have enough cash to buy a house outright or get a mortgage and invest your cash, you still do have to invest your cash to benefit from the mortgage. If I have $300k in cash today, and I want to buy a $300k house, then I can get a mortgage and let inflation shrink my mortgage payments, but it's also shrinking the $300k I have in cash. I don't see how you can profit from the mortgage unless you find an investment for your cash with yields significantly higher than your mortgage interest rate.
    - foobarian 4y ago
      Index fund: VOO, FXAIX, etc.
    - 4y ago

j4yav 4y ago

How do you avoid the servitude and uncertainty by renting instead? Aren’t you still dependent on an income stream to pay rent without being kicked out?

rco8786 4y ago

This is objectively false. The vast, vast majority of homeowners do not foreclose ever. It’s no more “servitude” than paying the person who holds the note to rent from them instead of holding the note directly. You’re responsible for maintenance and upgrades. And it’s harder to move to a new place if you own vs rent. These things are true. But “lifetime of servitude” is comically hyperbolic and ignores all the positives of homeownership that historically vastly outweigh those negatives.

JetAlone 4y ago
I think you have a good point, thank you. I'm willing to be wrong here.

nemo44x 4y ago

Paying cash in a low interest world is a bad strategy for a number of reasons. 1) The cash is better used to diversify across other investments. These investments will likely out-earn the mortgage interest. 2) The government gives you tax write offs for mortgage interest. Not as beneficial for everyone as it used to be but there’s a good chance you will be able to deduct if your mortgage is in a high cost of living area. Up to $750k in mortgage debt. 3) A home is an illiquid asset. By borrowing the money and keeping your own money in liquid assets you gain flexibility and can jump on good opportunities. Agreed though that having tons of runway is wise.

deleted 4y ago

[deleted]

snarf21 4y ago

I disagree completely. You are trading risks and the government protects you in buying. The big problem is that people want to buy a 5 BR / 4 Bath that is the max they can afford so they do get stuck in that cycle. I didn't grow up poor by any means but today's kids need a 12x12 BR and sometimes on suite. We had 2 bunk beds and four teenage boys in a 10x10. People would be better served by buying the cheapest and smallest house that will actually function for them, make small upgrades over time and then play the upgrade game. Doing so by only moving to a bigger and nicer house when they can keep their payment and mortgage end date the same. You can't control rent prices any more than you can employment. At least with buying, you will likely have some appreciation eventually. The government gives you back the interest you pay. You have an asset you can borrow against in bad times. You are paying the future's housing bill at today's prices. Inflation is your fried after you have bought your house. A house is the best way 90% of Americans have to build equity. Additionally, with all the NIMBYism everywhere, the likelihood of appreciation is almost guaranteed (outside of dead towns)

bombcar 4y ago
There's a simple proof that the upgrade game is the way to go. 1. All remodels lose money, except MAYBE a minor kitchen remodel. 2. Ergo, if you buy a house that was remodeled, you win. 3. Ergo, upgrade instead of add-on, so start small and buy up.