How the heck did mortgages become so OK??

[snafu]

I thought the government encouraged home ownership [the American Dream] as a job creation project. Way back then, the building trades used huge numbers of man-hours to build suburbs plus returning military were desperate for a roof over their family's heads. Yeah! two problems solved.

Conditions have changed, serviced land costs have escalated [p-r-o--f-i-t for the municipality], fewer manhours, certified tradesmen and permits, permits, permits. Add in developers, realtors, mortgage brokers, lawyers and bankers and it all equals escalation in cost.

[jIM_Ohio]

I thought the government encouraged home ownership [the American Dream] as a job creation project. Way back then, the building trades used huge numbers of man-hours to build suburbs plus returning military were desperate for a roof over their family's heads. Yeah! two problems solved.

Conditions have changed, serviced land costs have escalated [p-r-o--f-i-t for the municipality], fewer manhours, certified tradesmen and permits, permits, permits. Add in developers, realtors, mortgage brokers, lawyers and bankers and it all equals escalation in cost.

Half true, half in accurate.

The government encourages home ownership thru the mortgage interest deduction.

It has other incentive programs (like FHA loans, and discrimination testing for who gets those loans- ie make sure inner city minorities apply for the loans), but the single biggest incentive by the federal government to own a house is the mortgage interest deduction.

I do agree that profit and speculation change the landscape.

[wnlbutterfly]

I thought I had read that mortgages became the "norm" after one of the wars when soldiers came back. But I can't recall where I read/heard that, and just getting advertisement when I try to google it.

[disneysteve]

I thought I had read that mortgages became the "norm" after one of the wars when soldiers came back. But I can't recall where I read/heard that, and just getting advertisement when I try to google it.

That would probably be WWII. I know my parents bought their house with a loan that was part of the GI Bill. As I said, though, they also repaid that loan within 5-10 years - not 30.

[LivingAlmostLarge]

Beppington, most rich people HAD mortgages and DID not pay cash for homes. Read the entire article. Also they did NOT OVEREXTEND themselves, meaning they borrowed but WISELY,. THUS they did not live debt free, but rather leveraged their assets to buy things that made them rich....Read the millionaire next door, has the same study and all said they bought homes they could AFFORD.

Also no money? Well my DH was 22 and done with college. No money because he had to PAY for college himself and had student loans.

So money was sort of not really available considering he had to pay to get here, applications to grad school, deposits, etc. Sorry that he wasn't working hard enough at 22 to have saved so much when he was paying for his bachelor's.

Gosh, I'll tell him that he should have worked harder AND more. But then again, not everyone has the privilege of going to college and living at home, I certainly didn't.

[disneysteve]

Beppington, most rich people HAD mortgages and DID not pay cash for homes.

THUS they did not live debt free, but rather leveraged their assets to buy things that made them rich

Exactly. A big piece of getting richer is leveraging your money. Using other people's money to make money for yourself.

Let's say you buy a $100,000 house.

Person A pays cash.
Person B puts down $20,000 and borrows $80,000.

In 5 years, the house is worth $127,000 (approx. 5% annual appreciation) and you sell it. Each person walks away with a $27,000 profit (ignoring fees, taxes and interest).

Person A, whose initial investment was $100,000 has earned an average annual return of 4.8%.
Person B, whose initial investment was $20,000 has earned an average annual return of 17.2%.

How was paying cash the better deal? Even when you account for interest paid on the 80K loan, the person with the mortgage still comes out way ahead of the person who paid cash.

[jIM_Ohio]

Exactly. A big piece of getting richer is leveraging your money. Using other people's money to make money for yourself.

Let's say you buy a $100,000 house.

Person A pays cash.
Person B puts down $20,000 and borrows $80,000.

In 5 years, the house is worth $127,000 (approx. 5% annual appreciation) and you sell it. Each person walks away with a $27,000 profit (ignoring fees, taxes and interest).

Person A, whose initial investment was $100,000 has earned an average annual return of 4.8%.
Person B, whose initial investment was $20,000 has earned an average annual return of 17.2%.

How was paying cash the better deal? Even when you account for interest paid on the 80K loan, the person with the mortgage still comes out way ahead of the person who paid cash.

The flip side to this is you need to evaluate the cost of the payment vs investing that cash flow.

The flip side to both those arguments is that a house is not an investment

The mortgage or no mortgage is an opportunity cost. If that 80k mortgage had a payment of $800/mo. and the first person invested $800/mo and second person had that tied up into mortgage, that needs to be factored in.

The mortgage no mortgage is also about opportunity and stability.

The above post was good, just like poking at other issues just because I am me

[Beppington]

Here are my latest thoughts on this topic:

I provided two ways to become mortgage-free (build your own home or buy small & move up as your finances allow). Most people argued they were too hard, or I can't hammer, or not realistic, would start them out in a bad neighborhood, or my particular situation made it possible for me whereas it's not possible for you, etc etc. Others argued that mortgages are good because you can gain from that leveraged position.

That's all fine. Everybody has their own opinions, plans, beliefs, drive, energy, etc. I myself still believe having no mortgage has great merit. I fully enjoy not having one, & I don't believe I will ever again.

All that said, it has recently dawned on me that the rich people I know don't spend any time with others discussing their method(s) for getting rich, or how they got rich, or trying to tell others how to do it. As in, "Those who can, do; Those who can't, teach." I'm switching to that policy now, because I want to do as rich people do, and also since I've gotten what seems to be about 100% negative feedback on my suggestions in this thread.

I guess it's true that everybody has to do it their own way. After all, you're probably much more likely to stick to a plan you establish for yourself & fully believe in vs a plan somebody else had to talk you into.

[jIM_Ohio]

I've gotten what seems to be about 100% negative feedback on my suggestions in this thread.

you've posted your last thoughts before, there is hope for you yet

If my posts came across as condescending or made you feel bad, that was not my intention. Your comments came across rigid, whether that was your intention or not, not sure.

Being mortgage free is a good goal... it should not "necessarily" be the #1 goal. If mortgage free is the goal, that does not "necessarily" mean having a mortgage is bad, just a means to an end.

It was a good discussion, and you started that- kudos to you.

[Beppington]

you've posted your last thoughts before, there is hope for you yet

If my posts came across as condescending or made you feel bad, that was not my intention. Your comments came across rigid, whether that was your intention or not, not sure.

Being mortgage free is a good goal... it should not "necessarily" be the #1 goal. If mortgage free is the goal, that does not "necessarily" mean having a mortgage is bad, just a means to an end.

It was a good discussion, and you started that- kudos to you.

Yes, once I think I've figured something out, I do tend to be rigid. OK ... now that was my last thought on this ... startinnnnngggggg .... NOW!






(unless I think of something else)

[disneysteve]

It was a good discussion, and you started that- kudos to you.

I agree. Whether or not I agree with your position, I think the conversation has been a good one.

[nighttimesky]

I think that for most people they need a little help, I don't see it as a bad thing as long as you know what you are doing.

[MonkeyMama]

I agree. Whether or not I agree with your position, I think the conversation has been a good one.

Agreed.

In regards to the article - I also agree with LAL as far as reading the whole thing. I know a lot of rich/upper middle class people. Most of them had mortgage in their 20s/30s/40s. NONE have mortgages in their 50s+. Leverage was key to building wealth. But, they also kept their mortgages modest compared to the norm, and paid them off earlier than average, yes.

I have to agree with the rigidity comments too. My point was that our mortgage (& most the people I know who are well off) was much smaller than their earning potential, living in a pricey area. Mortgages may be expensive, but moving, taking a $40k annual pay cut, and paying cash for a house, doesn't make much sense if my mortgage is only $12k per month. In this situation (as many of us in higher cost areas), sacrificing everything for the ideal of *no mortgage,* doesn't make a ton of financial sense. It's not that it is a "bad goal." It just doesn't automatically mean the best means to building wealth, for everyone. Not if you can make a lot more money living somewhere slightly more expensive.

[ActYourWage]

I like the fact Beppington is willing to stand for what they believe in. Mostly, because I am in the same camp as your view on being in debt.

[Snodog]

I am debt adverse but not quite as extreme as Mr Beppington.

When we got married 18 years ago we bought a house that was about 1/2 the price we could have borrowed. Right now we owe 37k on that house and its been our only debt since I paid off my student loan over 10 years ago. I don't like home equity loans and haven't had a car loan in about 20 years.

But on the other hand our mortgage rate is low and I'm not in a hurry to pay it down when we have tax deferred space to use up.

And believe me you don't want me anywhere near a hammer or a saw trying to build my own house cause whenever I try to fix something I end up making it 5 times worse. Although I do admire people who do such things.