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I just turned 30. If I can’t afford a house in the next 10 years I’m going to be a lifelong renter. Why get a 30 year mortgage at 40, to only pay it off at 70

I just turned 30. If I can’t afford a house in the next 10 years I’m going to be a lifelong renter. Why get a 30 year mortgage at 40, to only pay it off at 70 and then die in two decades? It feels like the wrong thing to do but…I really don’t know how else to look at it. Sure. I could afford a house today where I grew up. But I’d have to surround myself with the highly undesirable culture (in my opinion) in those places. To put it nicely.

cykros 3y ago
Most people don't take 30 years to pay off their mortgage, which is why mortgage rates tend to move with the 10 year treasury rather than say, the 30 year rate. The investors generally assume the average prepayment results in them being paid off in about 10 years, and since they're the ones the mortgage lender is offloading to, it's what your rate is determined by. You buy a house, service the mortgage while you're there, then sell it (using the proceeds to pay off the mortgage), and if you've not made a bad investment, you come out with more money than you went in with, which presumably, you put toward a down payment on your next home. If you're downsizing, it may mean you're buying your next home outright, or with very little of the capital borrowed. Unless, of course, your property value declines. Watch out for bubbles, and get sensible insurance to mitigate the risks.
NDizzle 3y ago
> Why get a 30 year mortgage at 40, to only pay it off at 70 and then die in two decades? 1) Inflation hedge. 2) At some point in the next 30 years, you will be able to sell your home at / above what you paid for it, just due to the cyclical nature of things. I'm not saying real estate always goes up... but for example, I bought at age 41. $515k. Current estimated value, $900k. When the kids are all graduated and out of the house (when I'm 53-54ish) I can sell this, buy something outright in cash, and increase my saving rate from ~35% to about 60% without any change in my current standard of living.
- ryandrake 3y ago
  There's also the tax benefit of mortgage interest vs. rent payments. Granted, not everyone itemizes, but it's there.
  - nradov 3y ago
    The increased standard deduction in the most recent federal tax overhaul made it pointless for a large chunk of middle-class homeowners to itemize.
- scaryclam 3y ago
  I think the idea of being able to downsize (or stay where you are after paying your mortgage off) is underrated. Going into retirement with no big outgoing costs for housing outside of insurance and maintenance is a big upside of owning a house (I'm not in the US, so no property taxes either). You don't need to make a profit on a home for it to pay off longer term. Having a pension that can cover living costs while NOT having to also cover rent gives a lot of security. While it's also an option to get cheaper rent and put the difference into another investment, rent costs are hard to predict, so I'd rather not end up worrying about it later in life.
sixstringtheory 3y ago
If you pay a mortgage till the day you die, how’s that different than paying rent till you die? If you can find a home you like more than places you can rent, and the payments are similar enough, seems like it’s still better to get a mortgage. A mortgage payment can’t increase like rent can and most likely will, forcing you to move every X years if you decide you can find somewhere more affordable. Of course there are tradeoffs in the other direction, like if you need to move to a distant location for job/family/health, I just don’t think it’s as one-sided as you present it.

cykros 3y ago

Most people don't take 30 years to pay off their mortgage, which is why mortgage rates tend to move with the 10 year treasury rather than say, the 30 year rate. The investors generally assume the average prepayment results in them being paid off in about 10 years, and since they're the ones the mortgage lender is offloading to, it's what your rate is determined by. You buy a house, service the mortgage while you're there, then sell it (using the proceeds to pay off the mortgage), and if you've not made a bad investment, you come out with more money than you went in with, which presumably, you put toward a down payment on your next home. If you're downsizing, it may mean you're buying your next home outright, or with very little of the capital borrowed. Unless, of course, your property value declines. Watch out for bubbles, and get sensible insurance to mitigate the risks.

NDizzle 3y ago

> Why get a 30 year mortgage at 40, to only pay it off at 70 and then die in two decades? 1) Inflation hedge. 2) At some point in the next 30 years, you will be able to sell your home at / above what you paid for it, just due to the cyclical nature of things. I'm not saying real estate always goes up... but for example, I bought at age 41. $515k. Current estimated value, $900k. When the kids are all graduated and out of the house (when I'm 53-54ish) I can sell this, buy something outright in cash, and increase my saving rate from ~35% to about 60% without any change in my current standard of living.

ryandrake 3y ago
There's also the tax benefit of mortgage interest vs. rent payments. Granted, not everyone itemizes, but it's there.
- nradov 3y ago
  The increased standard deduction in the most recent federal tax overhaul made it pointless for a large chunk of middle-class homeowners to itemize.
scaryclam 3y ago
I think the idea of being able to downsize (or stay where you are after paying your mortgage off) is underrated. Going into retirement with no big outgoing costs for housing outside of insurance and maintenance is a big upside of owning a house (I'm not in the US, so no property taxes either). You don't need to make a profit on a home for it to pay off longer term. Having a pension that can cover living costs while NOT having to also cover rent gives a lot of security. While it's also an option to get cheaper rent and put the difference into another investment, rent costs are hard to predict, so I'd rather not end up worrying about it later in life.

sixstringtheory 3y ago

If you pay a mortgage till the day you die, how’s that different than paying rent till you die? If you can find a home you like more than places you can rent, and the payments are similar enough, seems like it’s still better to get a mortgage. A mortgage payment can’t increase like rent can and most likely will, forcing you to move every X years if you decide you can find somewhere more affordable. Of course there are tradeoffs in the other direction, like if you need to move to a distant location for job/family/health, I just don’t think it’s as one-sided as you present it.