Comment by jordanb | Hacker News Reader

Comment by jordanb | Hacker News Reader

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Your math only works if you're near the end of your mortgage life. At the beginning, nearly every penny of your mortgage payment goes to interest, which is front-loaded.

For most Americans, who move around fairly often, they will never come close to paying off a mortgage and the only equity they will ever own will be what they bought with their down payment plus whatever they get on the margin if the value of the house goes up.

If you, say, live in a house for five years and then move, then you basically rented the house from the bank for five years. Except that unlike a renter you also assumed the (upside and downside) risk of home value change, and assumed the cost of taxes, maintenance, etc. Plus you tied up a large sum of money in a down payment.

This may be worth it if you want to bet that home prices will go up in the next five years. It also may be worth it because mortgage interest, unlike regular rent, is deductible from your taxes, which is perhaps the most obscenely regressive thing in the tax code.

that's only correct if you assume everyone starts afresh every time they move - eg start with a 25 year mortgage, move after 5 years, take out a new 25 year mortgage.

why wouldn't the next mortgage be a 20 year term? that's a like for like replacement at that point.

Even if 99% goes to interest, $10 is still better than $0.

10$ is the cash asset. The big picture demands that you look at all the assets/liabilities/revenues/expenses. It's far from being that straightforward if you take into account net equity over time, risks, cash flow, depreciation, what-ifs, etc.

As long as you ignore the many thousands of dollars you paid in transaction costs to get the place. And potentially the many thousands you pay in opportunity cost if the house keeps you from moving when you otherwise would.

And don't forget the opportunity cost of having the money for your down payment locked into an asset and not earning returns in other investments.

If the homeowner gains $10 (or whatever) in equity over a certain period, that means he can break even renting the property he owns for $10 less than if he didn't have that gain. So competitive rental rates will tend to be somewhat cheaper than the cost of ownership. If it's cheaper by $10, renting and owning cost the same.

Your math example is silly on two counts. (1) you simply assume the rent and mortgage cost exactly the same, when they generally don't. (2) you ignore the downpayment. A renter doesn't have to make a huge downpayment, so if s/he has the money to make one, that is valuable flexibility - one can easily use that money in an emergency and can profit by investing that money in the meantime.

You are correct.

There are a lot of factors that can change the calculus. Buying is not always for everyone. People who move a lot where fees can eat up any benefits. Or people who do not have down payments or other cash flow problems (which can be a pretty effective market moat).

Rent, though, is often pretty comparable to a mortgage + taxes. In my area rent is substantially more for the same house.

So, liquidity is an important factor, no doubt about it. But I think one would be hard pressed to make a consistent investment profit that would make up for your 100% loss in rent compared to purchasing all other things being equal.

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