1) The cash is better used to diversify across other investments. These investments will likely out-earn the mortgage interest.
2) The government gives you tax write offs for mortgage interest. Not as beneficial for everyone as it used to be but there’s a good chance you will be able to deduct if your mortgage is in a high cost of living area. Up to $750k in mortgage debt.
3) A home is an illiquid asset. By borrowing the money and keeping your own money in liquid assets you gain flexibility and can jump on good opportunities.
Agreed though that having tons of runway is wise.
The vast, vast majority of homeowners do not foreclose ever. It’s no more “servitude” than paying the person who holds the note to rent from them instead of holding the note directly.
You’re responsible for maintenance and upgrades. And it’s harder to move to a new place if you own vs rent. These things are true. But “lifetime of servitude” is comically hyperbolic and ignores all the positives of homeownership that historically vastly outweigh those negatives.
With 30-year rates around 6% right now, the math becomes a lot tighter as well. Where are you going to find 6%+ investments right now?
If you invest on top of that and get some small decent return you come out even more on top.
If I have $300k in cash today, and I want to buy a $300k house, then I can get a mortgage and let inflation shrink my mortgage payments, but it's also shrinking the $300k I have in cash.
I don't see how you can profit from the mortgage unless you find an investment for your cash with yields significantly higher than your mortgage interest rate.
Some index funds though might beat your mortgage rate anyway, so it’s even better.
Buy a house (with mortgage) for 4%. Inflation is 5% a year. Invest the money in real assets (literally anything diversified).
Your mortgage price goes down in future dollars because of the delta between interest rates and inflation.
Even if inflation isn't happening, mortgage rates tend to be fairly low risk, so any diversified bucket of assets has a historical return greater than the mortgage rate, especially over a 30 year period.
If you bought a 13% mortgage in 1984 (highest), in 30 years, S&P returns 11% by 2014, so even if you never refinance, during the highest interest rates you're only down 2%. If you refinance at basically any time in the 90s/00s you're way ahead.
If you buy during amazingly low rates, you'll feel happy when the rates shoot up (and maybe sad if you look at Zillow, but if you're not moving who cares?) - and if you buy during rising rates you'll be glad you got in when you did, and if you buy at the peak, well, you can refinance later.
A $300,000 home with a 20% down payment and 80% borrowed at 5.0%* will cost you __$523,813.88__ over the 30 year life of the loan.
Logically, cash just sitting in the bank 1% or less in interest should go towards your loan costing more than 1% or towards avoiding $5k-$8k of closing costs on a mortgage.
*Today’s interest rates are 5.125% for a 30 yr fixed rate mortgage.
Ignoring income taxes, paying $10k down on a 5% mortgage with 25 years remaining is the same as purchasing a $10k bond at 5% that matures in 25 years.
One downside, is that pre-paying your mortgage doesn't change the cash-flow immediately, it just changes the end date of the mortgage.
So the invest/pay off home trade-off is there for everyone. Even for people like doctors, whose investments might not necessary be market-based.
Would you say that mortgage is probably driven down 8% because just can't afford the down payment anymore, or people like me who seem to have an irrational aversion to it?
Over the last two or so years, mortgage rates hit historic lows, which meant the demand for cheap mortgages increased significantly, both from people wanting to enter the market and those refinancing. Consider that the $500k mortgage that would have cost $2300/mo in 2019 suddenly costs like $1600/mo in 2021.
Absolutely I jumped on that train, as many others did. Lenders were overwhelmed and had to hire a lot to meet this demand.
If you missed that window, well rates are above what they were pre-pandemic, looking back at least a decade, so refinancing for lower payments no longer makes sense for most borrowers. People still are buying homes, but high prices and that disappeared “once-in-a-lifetime deal” are going to suppress demand.
Which is why you often see houses being purchased by new families, the kids are the first thing that really begins to put down roots (as you don't want to move them from their school/friends).
It is also capped at $750k of mortgage debt, which is not much for the 10% of filers who are itemizing and using the deduction.
Second, your mortgage interest (plus other deductions) need to be high enough to warrant itemizing deductions. At the start of 2021, my mortgage balance was $270K with a rate of 2.275%. Even including a $7,000 donation to charity, it wasn't enough for my wife and I to itemize.
That said, it's much better to mortgage than pay cash for reasons outlined already in this thread.
I literally said “deduction”. Who did you think you were replying to?
You can't control rent prices any more than you can employment. At least with buying, you will likely have some appreciation eventually. The government gives you back the interest you pay. You have an asset you can borrow against in bad times. You are paying the future's housing bill at today's prices. Inflation is your fried after you have bought your house. A house is the best way 90% of Americans have to build equity. Additionally, with all the NIMBYism everywhere, the likelihood of appreciation is almost guaranteed (outside of dead towns)
1. All remodels lose money, except MAYBE a minor kitchen remodel.
2. Ergo, if you buy a house that was remodeled, you win.
3. Ergo, upgrade instead of add-on, so start small and buy up.
By a substantial margin, having a large home mortgage leaves you in a better financial position the vast majority of the decades, even if you lose your job and are forced to sell mid decade.