4 ms·

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 lo

by 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.
  - xwdv 4y ago
    You don’t need to really beat your mortgage rate, you just need to beat the inflation rate which is easier. As your income adjusts to inflation overtime, your mortgage becomes easier and easier to pay off and makes up a smaller percent of your expenses. Some index funds though might beat your mortgage rate anyway, so it’s even better.
  - Raidion 4y ago
    This makes a lot of assumptions about interest rates, but it holds up. Buy a house (with mortgage) for 4%. Inflation is 5% a year. Invest the money in real assets (literally anything diversified). Your mortgage price goes down in future dollars because of the delta between interest rates and inflation. Even if inflation isn't happening, mortgage rates tend to be fairly low risk, so any diversified bucket of assets has a historical return greater than the mortgage rate, especially over a 30 year period. If you bought a 13% mortgage in 1984 (highest), in 30 years, S&P returns 11% by 2014, so even if you never refinance, during the highest interest rates you're only down 2%. If you refinance at basically any time in the 90s/00s you're way ahead.
    - bombcar 4y ago
      The real takeaway is that the outside factors are going to weigh much more than interest rates vs buy vs etc. If you buy during amazingly low rates, you'll feel happy when the rates shoot up (and maybe sad if you look at Zillow, but if you're not moving who cares?) - and if you buy during rising rates you'll be glad you got in when you did, and if you buy at the peak, well, you can refinance later.
- webinvest 4y ago
  If you aren’t going to invest your principal in something that will earn a higher interest rate than the loan interest rate on your house, then taking a loan and giving away more money to your bank is not logical or smart. A $300,000 home with a 20% down payment and 80% borrowed at 5.0%* will cost you __$523,813.88__ over the 30 year life of the loan. Logically, cash just sitting in the bank 1% or less in interest should go towards your loan costing more than 1% or towards avoiding $5k-$8k of closing costs on a mortgage. *Today’s interest rates are 5.125% for a 30 yr fixed rate mortgage.
  - bombcar 4y ago
    One way to look at it, assuming you already have the mortgage, is you can now buy a fixed rate bond that lasts the remaining term of the mortgage, at the rate of the mortgage. Ignoring income taxes, paying $10k down on a 5% mortgage with 25 years remaining is the same as purchasing a $10k bond at 5% that matures in 25 years. One downside, is that pre-paying your mortgage doesn't change the cash-flow immediately, it just changes the end date of the mortgage.
mywittyname 4y ago
People who accumulate so much wealth that they are able to purchase a home in cash are very likely to be doing some kind of investing. Be that traditional investing, running a business, or finding careers in sectors which require lots of time & education. It's just not feasible for people to accumulate large amounts of cash otherwise; the people who do are lottery winners or people with large inheritances. So the invest/pay off home trade-off is there for everyone. Even for people like doctors, whose investments might not necessary be market-based.

by ssharp 4y ago

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.
- xwdv 4y ago
  You don’t need to really beat your mortgage rate, you just need to beat the inflation rate which is easier. As your income adjusts to inflation overtime, your mortgage becomes easier and easier to pay off and makes up a smaller percent of your expenses. Some index funds though might beat your mortgage rate anyway, so it’s even better.
- Raidion 4y ago
  This makes a lot of assumptions about interest rates, but it holds up. Buy a house (with mortgage) for 4%. Inflation is 5% a year. Invest the money in real assets (literally anything diversified). Your mortgage price goes down in future dollars because of the delta between interest rates and inflation. Even if inflation isn't happening, mortgage rates tend to be fairly low risk, so any diversified bucket of assets has a historical return greater than the mortgage rate, especially over a 30 year period. If you bought a 13% mortgage in 1984 (highest), in 30 years, S&P returns 11% by 2014, so even if you never refinance, during the highest interest rates you're only down 2%. If you refinance at basically any time in the 90s/00s you're way ahead.
  - bombcar 4y ago
    The real takeaway is that the outside factors are going to weigh much more than interest rates vs buy vs etc. If you buy during amazingly low rates, you'll feel happy when the rates shoot up (and maybe sad if you look at Zillow, but if you're not moving who cares?) - and if you buy during rising rates you'll be glad you got in when you did, and if you buy at the peak, well, you can refinance later.
webinvest 4y ago
If you aren’t going to invest your principal in something that will earn a higher interest rate than the loan interest rate on your house, then taking a loan and giving away more money to your bank is not logical or smart. A $300,000 home with a 20% down payment and 80% borrowed at 5.0%* will cost you __$523,813.88__ over the 30 year life of the loan. Logically, cash just sitting in the bank 1% or less in interest should go towards your loan costing more than 1% or towards avoiding $5k-$8k of closing costs on a mortgage. *Today’s interest rates are 5.125% for a 30 yr fixed rate mortgage.
- bombcar 4y ago
  One way to look at it, assuming you already have the mortgage, is you can now buy a fixed rate bond that lasts the remaining term of the mortgage, at the rate of the mortgage. Ignoring income taxes, paying $10k down on a 5% mortgage with 25 years remaining is the same as purchasing a $10k bond at 5% that matures in 25 years. One downside, is that pre-paying your mortgage doesn't change the cash-flow immediately, it just changes the end date of the mortgage.

mywittyname 4y ago

People who accumulate so much wealth that they are able to purchase a home in cash are very likely to be doing some kind of investing. Be that traditional investing, running a business, or finding careers in sectors which require lots of time & education. It's just not feasible for people to accumulate large amounts of cash otherwise; the people who do are lottery winners or people with large inheritances. So the invest/pay off home trade-off is there for everyone. Even for people like doctors, whose investments might not necessary be market-based.