> If you buy a house and your mortgage payment is > rent. Overtime it will naturally flip.
This is so often missed by those who compare rent today vs. mortgage today. Of course the mortgage will be higher. Today.
Look into the future. Rent will only ever go up. Mortgage will only ever go down, both in absolute terms (due to opportunistic refinancing), and due to inflation, and proportionally due to your earnings increasing over your career. These three factors will erode a mortgage into nothing.
When I first bought my 3br house, my mortgage could've rented a 5br luxury house with a pool, so yes it was painful for a few years. A couple decades later now, my mortgage is about a fourth of the cost of renting a small studio apartment.
As you age, do you want to face ever-increasing housing costs, or decreasing costs?
> Mortgage will only ever go down, both in absolute terms (due to opportunistic refinancing)
If you bought a home during ZIRP, this doesn't apply. Even now, you're looking at cutting your rate by what, 2-3% max? And if rates drop by that much, the economy is probably bad. Hope you're still employed.
> and due to inflation, and proportionally due to your earnings increasing over your career. These three factors will erode a mortgage into nothing.
You must live in California and benefit from Prop 13, congrats. In the rest of the country property tax makes up a significant part of housing cost that only gets larger as your mortgage decreases. Property tax also increases over time in proportion to housing cost inflation and the local government's fiscal policy. Any improvements to your home increase your assessment as well. (Not sure if you have noticed but the quality of governance in the US is...not great, and many markets can expect double digit percentage increases in property tax over the next decade.)
Now you might say "yeah but this applies if you rent as well." Not as significantly for a few reasons:
- Smaller landlords will often eat the tax increase given the cost and risk inherent in switching tenants. Any rent increase incurs the risk of needing to find a new tenant.
- Larger landlords have access to sophisticated tax advice that you won't have as an individual homeowner. They also probably have a real estate law firm on retainer to contest changes in assessed value.
- When your locality jacks up property tax by 20% because they can't fund gold-plated public employee pensions for boomers, if you rent it's a lot easier to just move.
> If you bought a home during ZIRP, this doesn't apply.
No, but if you're holding a 2% or slightly less mortgage, that's a nice place to be.
But of course it's not only the mortgage interest. Over the years your income goes up also, and inflation eats away at the real cost of that mortgage even if the monthly bill is exactly the same for 30 years.
> Smaller landlords will often eat the tax increase given the cost and risk inherent in switching tenants.
This can be true sometimes but not in the long run. Unless you're exceptionally lucky, you're not going to find a lifelong rental where the owner perpetually takes a loss.
This is so often missed by those who compare rent today vs. mortgage today. Of course the mortgage will be higher. Today.
Look into the future. Rent will only ever go up. Mortgage will only ever go down, both in absolute terms (due to opportunistic refinancing), and due to inflation, and proportionally due to your earnings increasing over your career. These three factors will erode a mortgage into nothing.
When I first bought my 3br house, my mortgage could've rented a 5br luxury house with a pool, so yes it was painful for a few years. A couple decades later now, my mortgage is about a fourth of the cost of renting a small studio apartment.
As you age, do you want to face ever-increasing housing costs, or decreasing costs?