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Home ownership is a 30-year bet that you will have continued income to sustain the lifestyle[1] . It is extremely unlikely anyone will have a 30 year home run,

Home ownership is a 30-year bet that you will have continued income to sustain the lifestyle[1] . It is extremely unlikely anyone will have a 30 year home run, without job loss, divorce, bad health and any number of life events. Most people would be considered super lucky to have a decade of good run. On the other side of the bet are the financial institutions, which will get continued income (as long as you pay) and will own the asset the moment you can't pay. It is a win-win for one side of this bet. If home ownership was actually profitable, the super rich would have setup all kinds of structures to completely own all housing. The funny thing is the bank does not have the money, they create it out of nothing based on your ability to pay[2]! Extracting rent from money which they don't have. You either rent a home or rent the money (very few buy outright with cash). Bank can rent the money they don't have, as long as you show income + credit history. This is why Warren Buffet owns (some part) Wells Fargo, not homes. [1] lifestyle = (mortgage + property taxes + insurance + repairs + maintenance) + health insurance + child support [2] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

brightball 5mo ago
Best advice I ever got on home ownership: Don’t get a loan til you can save 20% for a down payment and then, never get more than at 15 year mortgage. Good advice on both counts. Once you have 20% down you get out of paying PMI (private mortgage insurance) and you can open a an equity line (HELOC) for about 80% of the equity in the house. It’s typically like a super low interest credit card that you can tap for emergencies. I didn’t have an income for 6 months once and had to live on it. The 15 year is critical. Do the math on a 30 year mortgage and you pay almost nothing toward the principle for a slightly lower payment for the first 10 years.
- skeptic_ai 5mo ago
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thelastgallon 5mo ago
To further understand how banks win, the interest is front loaded. Proponents of home ownership always point to low interest rate for 30 year mortgage. However, with front loaded interest, the majority of payment goes towards interest payment and not building equity in the first 7 - 10 years. For a $400,000 mortgage at 6.4%, after 7 years, you'd have paid over $210,000. However, the equity built is only $38,942. The other $171,226 went entirely to the bank. The average homeowner stays in their home for only 7 to 10 years before selling or refinancing. Which means very little equity building, mostly interest payments.

brightball 5mo ago

Best advice I ever got on home ownership: Don’t get a loan til you can save 20% for a down payment and then, never get more than at 15 year mortgage. Good advice on both counts. Once you have 20% down you get out of paying PMI (private mortgage insurance) and you can open a an equity line (HELOC) for about 80% of the equity in the house. It’s typically like a super low interest credit card that you can tap for emergencies. I didn’t have an income for 6 months once and had to live on it. The 15 year is critical. Do the math on a 30 year mortgage and you pay almost nothing toward the principle for a slightly lower payment for the first 10 years.

skeptic_ai 5mo ago
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thelastgallon 5mo ago

To further understand how banks win, the interest is front loaded. Proponents of home ownership always point to low interest rate for 30 year mortgage. However, with front loaded interest, the majority of payment goes towards interest payment and not building equity in the first 7 - 10 years. For a $400,000 mortgage at 6.4%, after 7 years, you'd have paid over $210,000. However, the equity built is only $38,942. The other $171,226 went entirely to the bank. The average homeowner stays in their home for only 7 to 10 years before selling or refinancing. Which means very little equity building, mostly interest payments.