Comments on: A Home Mortgage Means You Pay Double – Limited Income and Wise Spending

By: Mortgage/Bank Loan Interest… What A Sham! « Dodge Winston's Blotter

Mortgage/Bank Loan Interest… What A Sham! « Dodge Winston's Blotter — Tue, 17 Jan 2012 20:36:38 +0000

[...] Article about long term earnings vs. bank [...]

By: mUK

mUK — Sun, 20 Nov 2011 01:07:42 +0000

The problem isn’t house pricing, it’s the banks
seriously, do they HAVE to charge more than DOUBLE the loan amount in interest?

I was looking at cheap houses ($30k range) Most banks won’t even loan you 30k because $34k isn’t enough profit?

By: Matt Jabs

Matt Jabs — Wed, 10 Aug 2011 17:12:51 +0000

Hi Jenn, if you want to buy a home then go buy a home – no judgement being passed here. God bless.

By: Jenn

Jenn — Wed, 10 Aug 2011 16:00:39 +0000

Are people who earn $13 an hour any less deserving of home ownership? We work as many, if not more hours at jobs that are probably more dangerous. Just because the economy or society places less value in our work do we not have the same rights to property? Should we always be indebted to a landlord or mortgagee? We the people are exactly the ones who should own homes outright because we cannot afford to pay rent forever or interest on a home. I am not saying anyone deserves a brand new stainless steel appliance-granite counter top kitchen with a thee car garage home. I’m talking about a modestly sized two or three bedroom house (for a family!) with a large lot for all the things a family would need (veggie garden, chickens, fruit and nut trees, play and space, etc).
http://www.beangroup.com/real_estate/listings/Homes/NH/Bristol/1358123?utm_source=prop_res-title&utm_medium=web&utm_campaign=bgcom-click-tracking
This property would take a minimum of 8 years for our family to save enough cash to buy outright (living in a one bedroom apartment with two kids-assuming no surprises com along).
Even if we bought with a mortgage it would take a minimum of 2 years to save the 20% down payment THEN 15 years to pay the rest. And not for very much house either. It is just over a 1000 sq. ft. on just over 0.25 acres and has no garage (in New Hampshire, mind you). This towns largest employer is a factory with $15 to $17 and hour being top rate. The second largest employer is a small grocery store with most workers earning $9 an hour and no benefits.
Honestly how much should home prices increase? I know it takes money to keep up a home but COME ON a house should not be an income making endeavor. It is a PLACE TO LIVE. Everyone needs a place to live. Why are there not options for everyone’s price range?
What is this elitist type thinking that says all of us “poor” folks should stay forever poor? It makes me sick.

By: How realty makes royalty « Just Liberty

How realty makes royalty « Just Liberty — Fri, 03 Dec 2010 05:48:11 +0000

[...] little slice of the pie. You may, if you commit to years of hard labor during which you will pay twice the price, finally be able to say you legally own a small piece of land and a house. You too may see the [...]

By: Can You Afford It? Budgeting Monthly Payments — Couple Money

Can You Afford It? Budgeting Monthly Payments — Couple Money — Tue, 12 Oct 2010 13:22:32 +0000

[...] wrong with getting a mortgage and paying it on schedule, how many times have you thought about the total cost of your house? It’s an eye opener and you may think twice about rushing into becoming a home [...]

By: Paying the Mortgage Off Early — Couple Money

Paying the Mortgage Off Early — Couple Money — Mon, 11 Oct 2010 20:09:17 +0000

[...] down the mortgage quickly is also about own own peace of mind. We also don’t want to limit our cash flow for the full 30 years by carrying our mortgage the full [...]

By: Spedie

Spedie — Fri, 02 Apr 2010 18:29:18 +0000

I really liked this article! I think it is dead on. Why you may ask?

I am going through an event in my life right now that many people in the United States are going through. My daughter, who’ve I’ve raised her whole life, and is now 17 years old has decided to go live with her father.

I am about to become a non-custodial, paying through the arse, parent. Paying the child support has almost nothing to do with the actual support of the child and the expenses. Most of the child support goes to support the financial situation of the custodial parent. I am about to pay about $1900 per month, under state law, to my ex hubby, for this one child.

With the high divorce rate in this country, I can’t help but think I am not alone in this situation.

I bought my home a few years back and it is well within my means at $50 an hour to make the payments on a 15 year, 5.5% mortgage.

I am now going to have to sell it to meet the child support obligation. No worries, as I’d rather pay the child support than have my house.

Know what I am going to do? I am going to sell that house, sell just about everything in it, find a walk out basement to live in for 3 years after the child support obligation ends (that will be in just over a year), and bank all the savings of not having this “chain around my neck” called a mortgage around my neck any longer.

My husband makes about $18 an hour.

We figure, by renting out a walk out basement, that we can save $6000 per MONTH for 3 years, and then pay for a home with CASH.

Having a mortgage puts you at RISK. Having that mortgage and now this situation with my kid, knocked out my huge income and put me in danger of child support default – which would put me in jail.

No matter what would happen if I got laid off, got real sick, got in a car wreck, etc.

I refuse to have any more debt in the future – and that includes a mortgage. I am not playing this game any longer.

By: Is It Better to Buy or Rent? Use This Calculator to Find Out

Is It Better to Buy or Rent? Use This Calculator to Find Out — Tue, 23 Feb 2010 15:40:08 +0000

[...] of you chimed in with great thought provoking comments.But who is right? Does the fact that 30 year mortgages double home prices really make renting a better option than buying?Is It Better to Buy or Rent?The question is [...]

By: Forest

Forest — Tue, 23 Feb 2010 08:51:01 +0000

What an excellent article. I owned a flat in London and the mortgage was crushing. I sold as I wanted to move out of country but it taught me that I did not want a mortgage ever again…. Now I live in Egypt and am on the slow road to start savings. However I really think I can buy a house in cash one day and save the mortgage woes.

Thanks,

Forest.

By: George

George — Mon, 22 Feb 2010 17:57:57 +0000

@Neil: You’re quite right that the cost of homes, over longer periods of time, does track inflation. Problem is, that only really applies for timeframes of greater than 20 years. In the past five years, for example, housing prices have experienced deflation – severe deflation in some markets. Before that housing prices increased at a rate far greater than inflation.

If housing prices have outpaced inflation (as they did from 2002-2007), then it can make sense to keep renting until a price correction reverts the prices to the long-term averages. There are plenty of people out there who purchased homes in 2006 and 2007 and now own an asset that’s worth considerably less than the price they paid for it. I’m sure many of those people wish they were renters.

By: Neil

Neil — Mon, 22 Feb 2010 17:05:17 +0000

To buy a house without a mortgage, you must spend years saving up for that house while renting a place. Over the course of that time, your rent will continue to increase with inflation, as will the cost to buy a house (over the long term, both rents and house prices do a pretty good job of tracking inflation). In order for renting until you can buy outright to be a better deal than buying a home the following equation must be true:
rent paid + cumulative inflation off house price – investment income on savings < interest on mortgage

I've run some simulations in a spreadsheet, and come out that it's better to rent only if inflation remains low and investment returns are more than 8% – a combination that you'd need some luck to end up with. This calculation did not incorporate the mortgage tax credit which would result in only very unrealistic scenarios tipping in favour of renting. So the only realistic scenario where I'd recommend renting to someone is if they expect to move, or have such bad credit that they can't get a favourable interest rate.

By: Fred @ One Project Closer

Fred @ One Project Closer — Sun, 21 Feb 2010 21:48:59 +0000

George, On average, the cost of renting must always exceed the cost of home ownership in order for it to be a profitable business for the landlord… You make a good point with the risk side of the equation; however, most large systemic risks are manageable with homeowner’s insurance. Other risks (such as property losing value, needing to move in a hurry) are unavoidable, but generally homeowner’s are well compensated for these risks by not paying profits to the Landlord.

By: Fred @ One Project Closer

Fred @ One Project Closer — Sun, 21 Feb 2010 21:45:20 +0000

I can’t help but weigh in on this one. Kim and I spend a lot of time thinking about our mortgage and home. Here’s a few things I think:

1) A home is not a financial investment. At least, not in the traditional sense of the word. It’s really an expense…. Your home doesn’t really ‘make money’ for you. On average, home values must approximate the pace of wage inflation in an economy. At best, they are a better way to pay for a housing expense than renting because they offer capital accumulation and, over the long haul, cost less than renting.

2) Taking a mortgage is a wise investment if you view it as a positive alternative to making a rent payment and you do all the math to justify it. Mortgages are tax deductible if you itemize and make the necessary deduction floors to make it worth it. That said, no one should get a mortgage “just to shield income” or something like that…

3) Rules of frugality still apply in housing. Buy only what you need. Don’t splurge unless you want to be ‘house poor’. Better to take the extra cash and invest it. Then, once you have a larger capital base, by the larger house with cash. Or better yet, stay in your current house and have the option to start your own business.

By: Matt Jabs

Matt Jabs — Sun, 21 Feb 2010 16:16:13 +0000

@George: Again… thank you for this response, it is exactly what I would have said.

@Theseus: Presumption of income for 30 years is terribly risky.

By: George

George — Sun, 21 Feb 2010 13:11:03 +0000

@Theseus Ocean: Whether the house is “economically sound” involves more than a comparison of the cost of rent versus a mortgage. It involves looking at the total cost of home ownership: mortgage, property tax, repairs, insurance, utilities, more repairs, etc. All of these items cost far less (or aren’t your problem) if you’re renting. You also have to look at your income, projected future income, and ability to carry the mortgage in the event of unexpected circumstances.

For example, if you and your spouse both have incomes, could you still pay your housing costs if one of you lost your job? Do you have enough of an emergency fund to cover a few major expenses at a time (say, your furnace or AC dies at the same time that your car breaks down)?

Paying rent can be a very wise move, since it avoids a number of the risks that go with home ownership. It also makes you considerably more mobile if you need to change jobs and move to another location.

By: Theseus Ocean

Theseus Ocean — Sun, 21 Feb 2010 07:03:12 +0000

Using your math, imagine paying rent for the rest of your life. Average rent in the mid-west is around $600 a month. That’s $216,000 over a 30 year period. Finding a more conservative apartment at $300 would not only be limited in quality, but still only cut the cost in half. There are plenty of homes in the mid-west in the $60,000 – $90,000 dollar range. I think purchasing a house is still a more economically sound idea. Why pay someone else’s mortgage?

By: Robert Espe

Robert Espe — Sun, 21 Feb 2010 00:31:06 +0000

The real question that comes to my mind is, what would people do if they couldn’t get a loan? They would rent and save if there was no other option. To me that says that people are getting mortgages either because of a lack of patience, because of the notion that anything else is impossible, or because they think it doesn’t make a big difference. My goal was to show that people have something tangible to lose by taking the impatient route to what they want. I’ve tried to demonstrate before that it is possible. I’m having a go at it myself. I make around $23/hr, but I’m single income. I’m thinking about 4 years. I believe it can be done, and that people would be better off in the long run. But like anything good in life, some sacrifice is required.

By: JoeTaxpayer

JoeTaxpayer — Sat, 20 Feb 2010 19:10:53 +0000

George, there’s a flip side to (nearly) every issue.
Someone making $13/hr may very well be able to afford a $100K mortgage, even within conservative underwriting guidelines. That same hypothetical guy can save the downpayment by living with friends, parents, etc.
The median homeprice in the mid-west is about $140K. It’s not too great a stretch to expect there to be many homes in the $100-$120K range.

By: George

George — Sat, 20 Feb 2010 16:45:13 +0000

@FinancialBondage That’s exactly why people who earn $13/hr shouldn’t be buying houses. A 20% down payment is not unreasonable – 20 years ago it was the norm, and a prerequisite to getting a mortgage.