Why are you buying a home, versus renting?
The easy answer for most people is, “Because I need a place to live and I’m tired of paying my landlord and I want to build some equity and I want to own my own place and put down roots.”
Plus, in the suburbs at least, there are far more homes available for sale than for rent. So, it’s a matter of supply & demand.
Then you get into the whole “American Dream” thing, where owning your own home is your path to middle class happiness and financial security. (A worthwhile thing, I believe.)
If you do the math, however, the reality is, owning a home is going to give you back a lot less financially than you might think.
The Wall Street Journal covers the issue today in a thorough, well-thought out article.
Question: I have to pay something for a place to live. Certainly it’s better to pay “deductible” mortgage interest than rent.
Answer: Buying a house with a long-term mortgage is just another form of renting.
Mortgage interest is rent that you pay to your lender for the use of its money rather than to a landlord for the use of his house. Yes, the government picks up a portion of that with the tax deduction, but most of your monthly payment neither builds equity nor is deductible. It just goes down the same black hole that sucks up any other renter’s money. And it takes 20 years before a typical borrower pays more principal each month than interest.
“I have to pay something” is a rationale that home buyers use for going deeply in debt and paying tens or hundreds of thousands of dollars in interest to buy a house that, they mistakenly believe, will make a big profit for them down the line.
My take? There are many good reasons to own a home. As the article states, “Your home gives comfort and protection to you and your family, and it could well embody all your material hopes and dreams.”
That’s damn good enough, in my book.
More: Your Home Isn’t the Nest Egg That You May Think It Is – By David Crook, The Wall Street Journal Online
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