> If the net cost of home ownership is lower than renting
How do you know the net cost on a 30 year loan? If you can confidently predict decades of interest rates there's far more profitable investment classes for your money.
How do you know the net cost on a 30 year loan? If you can confidently predict decades of interest rates there's far more profitable investment classes for your money.
This will vary a lot by the rate you get but I think it’s in the ball park.
https://budgeting.thenest.com/end-up-paying-house-once-paid-...
How often do the rates change? Anything crazy like 2-3% swings? Doesn't that make budgeting tough?
Re budgeting, I think the relatively slow rate of change makes it mostly a non-issue though I think people at the upper end of their borrowing power struggle with rate rises.
The ARMs (Adjustable-Rate Mortgages) here in the US can jump pretty severely, mostly because they are only given to folks with bad credit. Folks with bad credit push to buy something out of their budget, get behind, rates spike, then lose it all to the bank, continuing the bad credit cycle.
So let me rephrase then: How do you know the cost of 30 years rent to compare it with?
But how does that even pay off? Consider down payment as an investment, and rent / mortgage something you'd have to pay to live wherever as a cost of life or an investment in yourself.
Even if all you got was your original purchase price back in 30 years, that can make the purchase worth it. Doing the math above, saying I paid $2200/month for 30 years on a $600k house, that gets me $792k paid for a $600k house, with $120k required up front. But I get $600k back at the end (even assuming zero market appreciation). So if you had instead invested the $120k somewhere else, rented some place for $2200/month (never to see that money again, like it was burned up), in order to get $600k back in 30 years, you would need to beat 5.5% annual return on that invested $120k.
But if that house increased in price (even by average appreciation)? Then the reality is that your investment of $120k needs to beat 9.2% of annual return in the open market to beat the investment in a house, even if all you did was live there instead of some place else (assuming your house can fit your needs).
Of course things like property tax, HOA dues, etc., can muddy up those calculations, but all of it is easy to drop into a spreadsheet. The hard part is actually earning the money (or at least that's been the hard part for me).
(please note that I paid substantially less than $600k for my home in LA, the numbers above are for reference, and not necessarily valid for current market conditions - especially interest rates and home cost)