The 30-year mortgage is an intrinsically toxic product (2018)

https://byrnehobart.medium.com/the-30-year-mortgage-is-an-intrinsically-toxic-product-200c901746a

by kristianp • 3 years ago

52 110 3 years ago

byrnehobart.medium.com

roenxi2• 3 years ago

It goes a lot deeper than the 30 year mortgage. The entire US financial system seems to be premised on the idea that free markets aren't reckless enough and that they needed to be pushed out into riskier territory. 30 year mortgages are one aspect of this strategy. Pumping money into stock and bond markets via the fed and the "President's Working Group on Financial Markets" are another wing drawing money into riskier assets. Listening to Peter Schiff talking about what happened when he tried to open a full reserve bank was also eye opening (spoilers: banking regulators do not like full reserve banks).

I feel it is unfair that capitalism is tarred with the inevitable collapses that follow. Capitalists are being pushed to the brink here. The regulators are where the push comes from that forces the US economy to take far more risk than is sensible.

zhte415• 3 years ago

US 30 year mortgage, fixed rate as they are, are risk subsidised by Fannie Mae and Freddie Mac. It's a regulatory subsidy of the mortgage and ex-mortgage home owning class.

That 'problem' is caused by regulation, structural regulation, not day-to-day regulatory enforcement or change. So where does that risk 'go'? Where do you suggest? What can regulators do to un-risk the risk that's been un-risked/passed on from those that take out mortgages?

roenxi2• 3 years ago

I'm not sure I follow the question, but presumably the people borrowing the money aren't bearing it and the people lending the money probably aren't stupid enough to lend money for 30 years at fixed interest rates. So by elimination, the the people holding the bag are probably the taxpayers.

But I don't know the details of how the market works. Wouldn't surprise me if there are other quirks at play.

psunavy03• 3 years ago

This is such unadulterated bullshit. The purpose of a 30-year fixed mortgage is to build up equity over the course of someone's working career such that when it comes time for them to retire, they own their primary residence and only have to pay property tax on it until they die. This allows people to retire on a fixed income less than what they earned in the workforce, enabling their nest egg to actually BE a nest egg, and then also allows them to pass that property to their heirs, allowing for the beginning of generational wealth, if not the continuation thereof.

If you rent for the same period of time, you piss away literally hundreds of thousands of dollars of home equity which you and your heirs can benefit from. But let's piss all over the greatest tool society ever created for creating generational wealth, because it's "capitalist," and that means it's icky.

htss2013• 3 years ago

Except the average US mortgage holder buys and sells a house every 7 years. For the first 7 years the amortization schedule means you're paying almost all interest and building very little equity. You're also paying realtor fees and transaction costs each time.

So while paying off a 30 year mortgage might have been to pay off the house and keep it forever, that's not how Americans treat it. They basically use it as a way to get 10-20x leverage on housing prices speculation, and if they profit, cash out 7 years later and do it again with a new house.

cowl5• 3 years ago

The article clearly says that it is for the US but I still can not think of a reason why that would be valid for US and not Europe for example.

I'm not an economist but my math is simple. I compare the Mortgage rates with Rent rates and the fact is that Paying rent for 30 years is money sent down the drain. For an average difference of 10% you would be the owner of the house after 30 years instead of just wasting all your money on rent without anything to show for it.

The whole discussion that this is a bet that your property will still hold or improve the value is meaningless, because even if it loses value (very improbable in most cases) it's still better than 0 that you are left with after paying 30 years of rent.

Now all of my math is not valid anymore if you taking a mortgage as an investement and not for your first Home and maybe that is what the article is about but still the Mortgage is very helpful for many people and just because it doesnt make sense as an investment does not make it toxic.

resolutebat• 3 years ago

One big difference is that in many other countries, fixed rate mortgages are not available.

irrational• 3 years ago

We purchased a nearly 4,000 sf home on an acre 2 years ago. There are apartments within walking distance of our house that have rents higher than our mortgage payment. And not even that nice of apartments.

richardw• 3 years ago

In Sydney. We’re renting a house for 35% of the mortgage price. And the rental is pretty crazy, so mortgage is ludicrous. Some places are just irrational.

ozr• 3 years ago

The NYT Rent v Buy calculator is pretty out of date at this point, but it's definitely not as straightforward as rent being throwing away money and a mortgage building equity. Upkeep is a non-trivial expense, opportunity costs of money put down, money still being not turned into equity via, e.g., property taxes and insurance (higher than renters), etc.

Add in the bigger intangible of the flexibility you gain from renting, and it's going to be a very individual decision.

zer8k2• 3 years ago

Yes the article seems to be written with the undertone that mortgages are somehow exploitative. It even goes all the way back to the GFC to point out the weird edge case where NINJAs were lent out like hotcakes. The reason that become toxic is because brokers were getting insane commissions signing people up for them.

Any mortgage at almost any fixed interest rate, assuming a market amenable to the local prevailing median income, will always beat renting. If the value goes to 0 somehow you still have a roof over your head. That is, assuming that the government doesnt take your property away. Which shockingly they can. Different discussion though.

There is a remark that's important here though. The math both you and I agree on assumes that the property is not an investment. The reality is all property is effectively an investment because even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places. No one would make such a leap without being guaranteed something back. The calculus changes at that point. Even for first time homeowners.

pjc503• 3 years ago

Any mortgage at almost any fixed interest rate, assuming a market amenable to the local prevailing median income, will always beat renting

Yes. One of the smartest finance guys I know says the simple model of taking the landlord's (imputed) mortgage yield and adding four percent nearly always predicts the rental level.

even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places.

But the causality of this is surprising: that's because interest rates have come down. So the repayment monthly cost has remained constant, but the deposit and salary ratio have shot up.

Now that rates are on the way back up one of two things has to happen to maintain the ratio:

- house prices drop

- inflation increases nominal-income rapidly past house prices

The use of 30-year mortgages hugely slows down those effects, though.

chii3• 3 years ago

If the value goes to 0 somehow you still have a roof over your head.

you got the cause and effect wrong here.

As long as you have the roof over your head, the value of the property isn't zero.

If you can no longer use the property as a roof over your head, it's value drops to zero. For example, the place is completely flooded, or destroyed in an earthquake (assuming no insurance etc).

Any mortgage at almost any fixed interest rate ... will always beat renting

only true if you put enough constraints on the condition under which you consider this to be "amenable". In realistic situations, renting or mortgages could either be better or worse, depending on the circumstances. On average, it costs "the same" to live somewhere with rent, or via a mortgage - otherwise, there'd be an arbitrage opportunity!

poisonborz3• 3 years ago

Except owning a house costs way more than the mortgage itself, that renters dont pay. Taxes, maintenance and improvement costs, which are massive considering most people can only afford houses built in the 60-80s, and governments like Germany has strict regulations. Couple this with the risk of suddenly not be able to pay - you can sell, like if you want to break out of the inflexibility of living in one place, but then see your maintainer investments flow in most cases.

rwmj4• 3 years ago

Except owning a house costs way more than the mortgage itself.

You must have had incredibly unlucky house purchases.

jacquesm3• 3 years ago

On buildings that you buy that are not fixer-uppers the average maintenance cost should not be more than 2% or so of the value of the home per year. There was a time that interest rates were lower than that but historically that's an aberration and some of those costs you'd have as a renter anyway, after all not all maintenance costs are borne by the owner, some are taken on by the tenant.

phicoh4• 3 years ago

It depends on your local housing market, but for example in The Netherlands, there is enough demand for houses, whether to rent or to buy, that when you rent you do pay all of those taxes, maintenance, etc. It is just part of the rent. I have a hard time understanding a market where landlords cannot recover the cost of those taxes, etc. How you you make money if you can't do that?

Then in The Netherlands, on average prices of houses go up. Fast enough even that for most people it is very hard to save enough money each year to even keep up with the housing prices.

Then we get to the point that with a mortgage, part you pay is interest, that money is lost, just like rent. But in part you repay the mortgage. That stays in your pocket. So even if the cost of renting is the same as the mortgage plus taxes and other costs, then the mortgage is still cheaper.

If you want to buy a house and you are currently renting then you are competing with people who see the value of their current house go up, and the part of the house that they own went up because they repaid part of the mortgage for some years. This makes it almost imposible to compete if you have been renting for a long time.

Obviously, there can be local market where the demand for houses is low enough, that renting a house can be attractive.

pjc503• 3 years ago

owning a house costs way more than the mortgage itself, that renters dont pay

The renters do pay. It's included in the rent. Unless you think the landlords are, everywhere, happily making a loss?

MikeTheRocker2• 3 years ago

On timescales less than a decade or so, this idea that rent is "money sent down the drain" is often inaccurate in certain VHCOL markets like the San Francisco Bay Area. Rent typically costs much less than a mortgage payment, and the numbers work out that investing what you save by renting puts you ahead. This is a major reason I've stayed a renter even though I think my quality of life would be higher as a homeowner.

rottencupcakes2• 3 years ago

Curious, where does rent cost much less than mortgage payments in the SF Bay Area?

comfypotato• 3 years ago

Typically, you can save money by buying the exact same situation that you would rent. Whether or not that exact situation is available to purchase, or if you would even want to own it (owning a small studio might not make sense) is a different question.

Unless I’m wrong and SF is actually cheaper to rent always.

Even considering all this, it’s often only a small difference. And renting gives you a different and sometimes advantageous quality of life.

BiteCode_dev5• 3 years ago

When you rent, you can do the following:

- Move to a better paying job easily. You make instantly more money.

- Move to a cheaper place when times get tough. This gives security because your life is flexible and can adapt to the ever changing life.

- Change the space if you get a wife, kids, a dog, a parking space, or if they leave you. Well, the parking might stay.

- Leave if a neighbor becomes invasive, if they build a supermarket under your windows, if water gets contaminated...

- Get closer to your job so that you save time, energy and transport money.

- In case of divorce, you don't have to share anything.

- The gap between rent money and mortgage payment money can be used for anything. Sometime you can invest it. Sometime you can buy a gift or holidays. Sometimes it saves your ass for tough days.

Selling a house is hard. It cost money, time, energy, and you still have your loan running after that if you didn't negotiated early repayment. Plus, good luck getting a new loan to buy the next place if you are still paying the first one.

A house is a lot lock in, for the money it provides.

rwmj4• 3 years ago

Back when I had a mortgage in the UK I would have given some vital part of my body for a mortgage which was stable over 30 years (and allowed me to repay it at any time). Long, fixed-term mortgages are quite rare outside the US. Over here you get a 2, 3 or 5 year fix and after that it jumps to a much higher variable rate, which means in practice you have to remortgage. A load of expense, hassle and uncertainty every 2-5 years.

automatic61312• 3 years ago

I would have given some vital part of my body for a mortgage which was stable over 30 years

The entire point of the blog post is that achieving this for everyone carries vicious negative externalities.

Gibbon12• 3 years ago

Skeeziest thing a friend did when rates were low during the pandemic is mortgage his house and use the money to buy a commercial property. The rents on the commercial property cover the mortgage on his house.

But you are correct. You shouldn't treat an owner occupied house as an ordinary real estate investment. The flimsy type of analysis that poo poos buying a house always assumes you'll live in a large cardboard box somewhere.

unmole• 3 years ago

always assumes you'll live in a large cardboard box somewhere.

It assumes you'll rent a comparable place.

yuppie_scum4• 3 years ago

Why is that skeezy? It’s no worse than using your credit card to buy something. In fact, maybe better since it’s backed by a real asset.

whobre• 3 years ago

That’s the narrative that real estate agents have been selling for decades. In reality, it depends on the location: in some places it makes sense to buy; in others, it turns out that the total cost of owning a home is so much higher than renting that it makes sense to rent and invest the difference.

In any case, do your math for your specific situation and ignore blanket advice.

bbbobbb2• 3 years ago

Your math is too simple. Consider alternative scenario where you invest your down payment and what you save on mortgage (generally slightly more expensive), invest what you save on extra repairs / maintenance.

After those 30 years it's entirely possible that as a renter I have:

- been able to take advantage of moving freely for personal or economic reasons

- been able to move to a newer completely renovated apartment number of time for no costs other than moving my stuff instead of either paying for it or living in a house with a 20 years old kitchen

- been able to live without stress about all the responsibilities that come with owning a house, being in debt and tied down

- come out with enough money from my S&P500 that I started 30 years ago to decide to settle down somewhere and buy the house or continue as is with bunch of money saved up

I am not saying that this is what will always happen or that owning a house is strictly worse but the "rent is money down the drain, mortgage payments is money you keep in the end" angle is way too naive.

jacquesm3• 3 years ago

You must be a much better investor than I am. On property I have to date never lost a dime, and made pretty good money every time I bought something and held on to it for at least five years. But on other investments the returns have been all over the place, from tripling my money to losing it all and everything in between.

If you don't have a home that you own yet and your only options are mortgage or renting I'd pick the mortgage any time, but I'd always make sure to buy in a market that is active.

pjc503• 3 years ago

been able to live without stress about all the responsibilities that come with owning a house

A lot of renters report that being forced to move house regularly is a huge source of stress.

rent is money down the drain, mortgage payments is money you keep in the end

Mortgage is paying rent on a house-sized chunk of money which you have to spend on a house. Economically they're similar. Except the US has a big tax advantage which is only available to morgagors. (Does it also have the home capital gains tax exemption?)

wodenokoto• 3 years ago

How do you calculate the monthly savings of renting vs mortgage? E.g, how do you decide how much more to put in the S&P500, than would have been possible if you had a mortgage?

cowl5• 3 years ago

Things must be really different in the US then. The downpayment here is really not an amount that you can make any serious investment with. Even if I made it I could not afford to put it in high-risk/high reward investments and the low risks ones are not even worth the cost of blocking the money.

- I can still move freely for whatever reason i want. I simply sell the house and buy a new one.

- the cost of changing a kitchen once in 20 years in your example but even once in 10 years is insignificant and the fact that I choose it according to my needs instead of getting whatever I find more than make for the cost.

- I have no stress of needing to move (generally the more flexible rent agreements that allow you to move out whenever you want also come with the risk of getting kicked out or rent changing significantly)

But again all comes down to the difference of rent vs mortgage and here in Europe for most people the difference does not make sense. let's talk specifics. Let's say rent is 700eur/Month and mortgage is 800Eur/Month. the difference is less than you would spend for frivolous, spur of the moment things.

bitshiftfaced• 3 years ago

The explanation that made the most sense to me is that, for people who for whatever reason, don't tend to invest budget surplus, buying a home leads to better outcomes on average. It keeps the lifestyle creep at bay with minimal mental load.

dave333• 3 years ago

But this ignores taxes. Also most renters don't save and invest they consume whatever they have left each month sometimes more. Owning a house with a mortgage forces you to save. Given real estate price trends over history throughout the world, do you want to be long or short it?

kcplate• 3 years ago

I am not saying that this is what will always happen or that owning a house is strictly worse…

In my adult life I have lived in ten rental properties and have purchased two homes (currently living in one of them). In my cases of home ownership, my property values increased enough over the time I lived in those properties that you could theoretically view the monthly outlay of my mortgage and taxes as nearly a zero sum game. However rent was always an expense and the amount of investment income I made on a theoretical “down payment” amount across the terms of those leases would not come close to erasing the rent I paid.

I realize this is anecdotal and specific to my location and frankly luck, but for me it makes having a mortgage make sense financially.

BiteCode_dev5• 3 years ago

If you take a 3% loan over 30 years for a $300000 home and a 20% down payment, you will eventually pay $124265.89 in interest.

This doesn't take into account any work you have to do on the house, the notary and agency fees, and any taxes on the way. Your $300k worth of investment may very well cost you around $500K. If it's worth $800k later on, you earned $300k buy selling it 30 years later.

We can also add the cost of opportunity, since you can't move easily when you have a home to get a new, get closer to your children, follow you the love you just found, discover a foreign country...

And that's in the best case scenario where:

- You found a cheap good home.

- You actually end up liking leaving here.

- Nothing changes to the point you have to flea the place.

- No accident, no fire, no water pipe breaking, etc.

- You can ensure you can comfortably pay the mortgage for three decades.

That's... a lot to consider.

To give you an idea, here is what happen if you take the same down payment, and invest $100 a month and interests into the S&P 500 index for the 30 last years:

You end up with $11 159 316.

With no lock in. And no worries.

I think it's fair to say there is a difference of at least $100 between your rent and mortgage payment.

cowl5• 3 years ago

I really don't know how S&P500 indexes work in the US but that seems a lot. so let me get it straight you are saying that by investing 60k (and then another 36k over 30years) (and by investing you mean put it in an index and forget it) you get 11 Million out? So a return of 103218.96% even if yuod have invested all of that from the start and not over the years? That is surely something wrong in that math or you just happened to be lucky with some ballooning stock.

The S&P average return rate over 30 years is 7.5%. Assuming you invest all 100k from the start you would have 800k after 30years and that's assuming having a consistent index over 30 years something that is less guaranteed than the Property market.

BirdieNZ• 3 years ago

I think it's fair to say there is a difference of at least $100 between your rent and mortgage payment.

In my country the rent has usually been more expensive than the cost to service a mortgage (particularly taking into account only the interest repayments, not the principal repayments).

Mortgages are one of the only easy ways to leverage 5x for the average person, and over the course of 30 years you can expect to be earning more (inflation of your salary) whereas the mortgage stays the same.

Rent, on the other hand, typically rises in proportion to your income, so your cost are increasing each year. With a mortgage, your costs are either the same or decreasing if you repay the mortgage faster than the initial term.

Where I'm from, interest and dividends from other forms of investments are taxed as income, but repaying your mortgage is not. In addition, as long as it continues to be a desirable place to live and incomes keep rising, real estate prices will continue to rise as a function of income. This means that you're leveraging into a fairly low risk asset with good growth potential, and tax-free returns.

Plus all the intangibles, like being able to:

- Have as many pets as you want, or pets at all - Not be kicked out with a short amount of notice - Redecorate, put pictures up, improve the house as you please - No 3-monthly house inspections

I'm not saying home ownership is a panacea but it has a lot of positives over renting, both financially and otherwise.

mihoda3• 3 years ago

Where are you finding 3% mortgages?

modeless3• 3 years ago

it's still better than 0 that you are left with after paying 30 years of rent.

You're not left with 0 if you're smart. You take the money you didn't spend on a down payment and also the difference between rent and mortgage (plus insurance, maintenance, and property tax) every month and you invest it. These investments can be diversified and thus far safer than an investment in a single house. You also retain a lot more flexibility to move, which can increase your earnings potential among other benefits. After thirty years of earning and investing you may very well be ahead. The "throwing money away" narrative is misleading at best.

cowl5• 3 years ago

This is all from an investor point of view. Most people dont have the time or knowledge to dedicate to research for good investments. The reality is that most working class people do not invest their money or at least not in the real investment sense. They might put it into an investment portfoglio that is handled for them by the bank or another investment institution, most of the time in the low-risk portofoglios but in no way that downpayment can generate any meaningful income.

But I see now that things must be really different in the US because many people keep repeating (insurance, maintanance, property tx etc). Where i live in europe the the difference between rent and mortgage price is insignificant. let say for example 600Eur/mont rent vs 700Eur/month Mortgage. Insurance, property tax, maintencance are insignificant in comparison to the yearly cost of either rent or Mortgage.

mellosouls• 3 years ago

The article clearly says that it is for the US but I still can not think of a reason why that would be valid for US and not Europe for example

You misread the jokey intro I think, which goes on to say it applies essentially everywhere in secondary effects; it makes no claim about the direct value of long term mortgages elsewhere except by implication that in similar systems generally they are a bad idea.

ActorNightly2• 3 years ago

Given the total amount you are going to spend on living, whether its a mortgage or rent, and given the total market of houses and rent prices, there is a clear line on whether you should rent or buy.

Over the course of 30 years, you will necessarily lose money to interest, money that you will never get back. At current rates of ~6%, you will pay more than the house is worth when you buy it. Add to this maintenance, property taxes, insurance, and HOE fees, and thats money that you will also never get back.

Lets do some rough math:

- 330k house, 6% rate. Total amount you will pay over 30 years is $712,266 - Yearly fees: HOA = 3000. Tax = 2500, Insurance= $1,820. Total over 30 years: $138600 Combined total: 850866. Net loss assuming house value stayed the same is ~520k

An area comparable. $1400 rent a month over 30 years is $504k. Difference in monthly payment is about $1000. Assuming a conservative 2% growth with safe investment, that $12000 per year put into those instead of mortgage over 30 year nets you about $500000. So you are better off renting.

Of course things change, and house prices can appreciate quicker than you accumulate interest, at which point you sell the house early, which is what most people are banking on. But that is never a guarantee.

In the end, you can do the math for you particular situation and figure out if its right to buy or rent. But owning a house is certainly just as much "throwing money away" as renting.

readthenotes1• 3 years ago

You didn't even include the $9k this year to pay for a new roof (hail damage, deductible, depreciation) that I replaced just 6 years ago (hail damage), the hot water heater that leaks and I really should replace (but will wait until I recover from the roof), the AC a few years ago, etc.)

Owning a house is expensive.

egman_ekki2• 3 years ago

Isn’t the rent going to go up over 30 years? My guess at least inflation adjusted?

freedom20992• 3 years ago

6% interest rate? Things are crazy in the US! For my house I got 0.9% fixed rate over 10 years. No yearly fees.

mihoda3• 3 years ago

The math is simple.

In the East Bay right now the cash flow (mortgage + prop tax + maintenance) alone for home ownership is 2.5x my rent for an identical property. It comes down to 2.2x when factoring in mortgage interest deduction and rises back to 2.3x when considering opportunity cost of capital.

I did a broader analysis and came up with 1.75-2.25x for other homes.

For a rational actor to buy a home right now, it implies a 5-6% expected return on the home price every year for an average of 10 years.

madsbuch3• 3 years ago

if you make a bond type mortgage in Denmark, then you trade your bonds directly in the market. this has some benefits to the say home owners. They can speculate:

When interest rates go up, refinance and sell you previous mortgage for cheap.

When interest rates go down, refinance and reap the lower interest rates for just the refinancing costs (you can always repay this type of mortgage at rate 100).

needless to say, the volatility on the bond markets had been extremely good for Danish home owners.

breput3• 3 years ago

When interest rates go up, refinance and sell you previous mortgage for cheap.

Can you explain this, because it seems opposite to the rest of the world (and since this is Hacker News, world = USA). You refinance...at a higher rate, and this is a good thing long-term?

madsbuch3• 3 years ago

if you have a loan of 1m at 1% interest (yes, that was the interest in Denmark before covid), then you can sell that loan for 800k and refinance with a new loan of 5% interest.

in turn you cut off 200k of your loan.

This technique obviously only works under the assumption that the interest rates are going to drop long term, so you can refinance back to the lower rate later (which all of the people who made the trick believes).

dang• 3 years ago

The 30-Year Mortgage Is an Intrinsically Toxic Product – By Byrne Hobart - https://news.ycombinator.com/item?id=32949987 - Sept 2022 (5 comments)

The 30-Year Mortgage Is an Intrinsically Toxic Product (2019) - https://news.ycombinator.com/item?id=29774075 - Jan 2022 (149 comments)

The 30-Year Mortgage Is an Intrinsically Toxic Product - https://news.ycombinator.com/item?id=18829435 - Jan 2019 (126 comments)

jaybrendansmith• 3 years ago

Real estate might not always be the best investment, but it's the only type of investment that the vast majority of the poor and middle class can effectively make. In what other context would a bank ever lend a penniless college graduate $500,000? If these mortgages did not exist, think how long people would have to save their pennies to afford a home - probably most of their lives. That's how things used to be in the US, back before these mortgages were put in place after the great depression. It depresses me how little we all seem to remember about the New Deal. I think being born into wealth must inflict a certain blindness to the difficulties of others.

a13o• 3 years ago

I had this same intuition and built an inverted calculator a few years back where you tell it how much you want to pay and it tells you how much house you can afford. It compared what that payment gets you on a 30 year vs a 15 year mortgage. Obviously you can buy less house with the 15 year. But not that much less house, and the interest you pay will be so much lower, that it puts money in your pocket every year for 15 years; so it tells you what that is.

I basically think we're all getting 30 year mortgages because we have to support the inflated house prices which drive the last generation's investments. If we aren't left holding the bag on this generational scheme, then who knows - the next gen may need 40 year mortgages to buy us out of our homes at their wage rates.

https://observablehq.com/@a13o/anti-30-year-mortgage-calcula...

phicoh4• 3 years ago

The Netherlands had for a while a very popular mortgage where you only pay interest. So in effect an infinite mortgage. (It now less popular for tax reasons). The reasons that works is that in a 30 year period (in The Netherlands), prices of houses are likely to have gone up enough that the mortgage is only a small fraction of the value of the house. At the same time, due to inflation, the actual value of the mortgage in future currency units is also very low.

So if you can expect a reasonable pension, there is no reason to worry about taking a very long time to repay a house.

Obviously, the assumption is that houses will go up in value. If on average houses go down in value then this doesn't work at all.

Doxin• 3 years ago

One of the main issues with that form of mortgage is that people didn't realize, for they were not informed, the payment for the entire house was due in full at the end of the run time. It left a lot of people going "Wait, what? I thought I had paid my mortgage for 30 years? what do you mean I need to re-mortgage my house?"

bullen• 3 years ago

The Mortgage Is an Intrinsically Toxic Product

xiphias2• 3 years ago

I believe quite the opposite: any kind of variable rate mortgage is a toxic product.

It's a way of saying ,,I give you a loan but I don't tell you how much more money you have to pay me back, maybe 5 times more interest as you may think now''.

automatic61312• 3 years ago

That's because you've only thought about it for 5 minutes, or your don't know much about finance, and definitely that you haven't read the article in question.

breput3• 3 years ago

A lot has changed since 2018, especially related to remote work, which negates several of the points of this article related to local labor markets and lack of mobility at least for some white collar jobs.

If you only read Hacker News you might think WfH is dead, and it might be for FAANG-ish companies, but in my industry it is still as remote-centric as it has been since 2020. I see people hired every day and we don't even have a sales office in that entire state.

So yeah, having a locked-in 2.75% 30 year mortgage is going to encourage you to stay put, but that's probably a net positive thing for society because you are going to be more invested in the the success of the school system, and the local library, and getting to know your neighbors.

And if you're on the wrong side of the interest rates right now or need to move, maybe you have to rent for awhile or buy a more affordable house than you expected. That's nothing new and eventually things will revert and you'll be the next low interest 30 year mortgage homeowner. The banks will continue to win.

lrem• 3 years ago

Wait, do mortgages in the USA get cheaper with lower rates? In Europe it appears that they’re always the maximum the people will be willing to pay. The only effects of negative base rates was house prices launching into the stratosphere. The cheapest place on the market in my suburb is 1.75 million USD for a two bedrooms condo (80m^2 = 861ft^2) with one parking spot.

breput3• 3 years ago

No[*], but the monthly payments get more affordable. The principal doesn't change but if you're paying 3% on a mortgage and possibly getting a tax deduction on that interest so it might effectively be more like 2.5%, then you can decide to pay that down more if you're earning more on other investments.

[*] It's arguable that low interest rates cause housing prices to rise, since more people can afford monthly payments on more expensive houses.

kapitanjakc2• 3 years ago

I don't get why it's toxic.

They are designed in that manner to make them money.

Moreover, I also don't understand why people complain, you did not had money, so you asked banks for some, they gave it to you and are charging the interest.

I also don't understand the argument of students loan, you did not had any money to study, they gave it to you, and they charge some interest.

Over the years you might pay twice the amount you borrowed, but that's how interest work.

constantly• 3 years ago

Usury for one. Laws have been on the books since the 7th century BCE because it’s such a repugnant act.

kapitanjakc2• 3 years ago

At what rates does it go from reasonable rates to usury ?

Do you guys not get the option to take the fixed rate?

cowl5• 3 years ago

usury: the action or practice of lending money at unreasonably high rates of interest.

jalapenos• 3 years ago

I view these as a mechanism to transfer life success from the group-thinkers to others.

So long as you don't participate, and rent their 2% yield properties and invest your surplus into business, you'll come out on top.

system2• 3 years ago

Mortgage can be evil sometimes but I am extremely happy with mine. I purchased a house and after 3 years I am paying less than what I used to pay for 1 bedroom apartment. In 10 years, my fixed rate will make my investment even more handsome.

Without mortgage I'd still be paying for rent, possibly forever. My house already appreciated over 30% in 3 years and better investment than keeping the money in the bank or even the best years of the market.

refurb5• 3 years ago

The key point in the article: "For the individual, the fact that encouraging 30-year mortgages is a bad policy does not imply that getting one yourself is a bad deal."

The criticism is separate from the benefit to consumers. One could argue it's not a good policy to have 30 year mortgages, and it just encourages more risky behavior. I can't disagree with that.

But as a consumer, it has a ton of benefits.

nologic01• 3 years ago

Imagine a world without fixed-rate retail lending. In such as world managing interest rate risk is pushed to individuals, i.e., those least informed and equipped to manage it. Its hard to imagine that world being "intrinsically less toxic".

In complex systems it is important (but not always easy) the distinguish effects of different causal order (the immediate role and impact, the second and third order effects etc.) The failings of modern financial systems are legion but incoherent rants in blog posts are not particularly helpful in sharpening and deepening our understanding of this beast we have created...

The 30-year mortgage is an intrinsically toxic product (2018)

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