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Comment by adflux | Hacker News Reader

Non homeowners are paying way more whilst getting less in return.

I really dont understand the logic of being OK with paying double for a house, just because the buyer can sell it for the same amount (or higher) afterwards.

I could purchase a 150m2 house with my salary a decade ago. Now I could find a 75m2 house that would be too expensive for me. I dont care about being able to sell the house for more money afterwards, it doesn't matter, because I have to live somewhere anyways. So any profits gained will (probably) be factored into the purchase price of the next house I'm buying.

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> paying double for a house

Are you talking about monthly payment or lump sum? When the lump sum doubles yet the monthly payment is the same, has the cost really changed? To me, no. I was never going to buy lump sum, so I only care about monthly payment.

Presumably, owing money for 60 years instead of 30 years will cost you much more in the long run. And more baked in interest early in the loan means less recovered when you sell.

How the hell do you find a 60-year loan? Sign me up! Remember, leverage is what makes home ownership a good investment.

The premise I replied to was the lump sum doubling and the monthly staying the same. The only way for that to happen is to extend the period.

You forgot interest rates changing, which is the primary cause of the recent home price changes. Remember, the mortgage market has a set of standard terms, like a 30-year-fixed.

Your liability has. If the interest rates goes back up to late 20th rates, your monthly payment isn't going to stay the same.

Only if its a variable rate loan

After all the adjustable rate issues from the last housing crisis, I believe most mortgages since them have been fixed rate. I don't care what interest rates do, my mortgage rate is never going up.

This touches on another point. For home owners like myself, inflation is a good thing as it makes my highest monthly expense relatively cheaper.

Ah, this may be country-dependant. It's pretty much impossible to get longer than 10 years fixed here in the UK, and the rates are high.

In the US 30 year fixed rate mortgages are common (standard?). Rates have also bumped around record low territory for years.

I know people who refied into 15 year fixed, but the rates have typically been so close I didn't see the point. Just pay more each month on your own and avoid the costs of the refi.

Rates might have little to do with whether refinancing from 30-year to 15-year makes sense. The most important factor is how long you plan on living in the house compared to the difference in interest paid between the two amortization schedules during that time. The longer you stay in the house, the larger the difference to where paying refinancing fees is virtually free.

On the typical fixed rate loan, amortization schedules are a function of rate, time, and payment. If someone wants to accelerate the schedule, they just need to pay more principal each month.

So, if someone already has a 30 year and the 15 year rate isn't much different, refing into a 15 isn't necessary. Just start paying monthly like a 15 and it will get close enough.

Also, if I already had a high rate loan and was refing where the 15/30 rates are very close, I would go 30. That way I can pay it like a 15, but have the flexibility to pay less if, for example, I lost my job.

Finally, this is why it's common to make 1 extra payment each year as it will shave ~4 years off the end of the loan.

https://www.trulia.com/blog/make-one-extra-mortgage-payment-...

>When the lump sum doubles yet the monthly payment is the same, has the cost really changed?

Yes of course it has. You've just over doubled (interest rates are low but they're not nil) the time it's taken to pay back that loan.

It's a 30-year mortgage either way. The time frame is exactly the same.

The only difference is the down payment, which matters because a bigger down payment means more opportunity cost of stock market gains.

Your payments go towards both interest and principal in a proportion that varies over the lifetime of the loan, such that your time frame is set by the terms of the loan. If you get a 30-year fixed rate mortgage, you pay it back in 30 years, regardless of the loan amount or interest rate. Look up "amortization table" if you're curious.

But the only way for the lump sum to double and the repayment to stay the same is to lengthen the loan period?

> repayment to stay the same

You mean the repayment amount? I'm not sure what you're asking.

Of the lump sum price (principal), interest rate, loan term (time), and monthly payment, you can only change three of the four, for a fixed rate loan. The fourth is defined by the combination of the others.

> I really dont understand the logic of being OK with paying double for a house

Double what? The price someone paid years ago under totally different market conditions?

In the future prices might be halved or double again - act accordingly

i am confused by your first sentence. what do non-homeowners sell?

Some people say "Well, you're paying more but you can also sell it for more afterwards". But non-homeowners are still paying more for less. That's the argument I am trying to make (poorly)

My rent doesn't change with interest rates.

That's true, rent keeps going up?

A fixed loan doesn't change with interest rates either.

Rent increases are a cause of inflation (as part of the basket of goods that defines inflation), which in turn causes interest rate increases, which then cause home price decreases.

Homes are like fixed-income securities. When interest rates go up, the value of existing securities goes down.

So does my mortgage that is why it is called 15 year FIXED.

Yes, as I said, you care about the monthly payment, not the lump sum price of the house.

Daily no. But higher interest rates and high inflation absolutely leads to higher rents each year when your lease renews (unless of course your in some rent controlled environment).

No, but in 20 years you’ll be paying rent with expensive 2041 dollars while the 30 year fixed rate mortgage is still being paid in cheap 2021 dollars.

Yes, but it turns out I came out ahead from 1990-2021 by having all my investments in the stock market instead of housing.

> Some people say "Well, you're paying more but you can also sell it for more afterwards".

No, they don’t, even talking about non-homeowners, because non-homeowners aren’t paying that much more (rents aren’t increasing the way purchase prices are, the rstio between them is increasing), and non-homeowners have nothing to sell, unless you are referring to subleasing as selling.

> But non-homeowners are still paying more for less.

I think you mean “first-time homebuyers”, but that just means it is more attractive to invest elsewhere while renting than jump into personal home ownership. No one is losing anything, certain choices are just becoming less favored.

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