The 30-Year Mortgage Scam

Everyone wants to be a homeowner.  Some only need 0,3,5,10% down and boom! They get to make 360 monthly payments to the bank and have the ability to say they own a house.

When in reality, they own nothing.

When you get a mortgage the only person that makes money is the bank.  Let’s take a principal residence as our first example.

An average house in America cost around $250,000.

Let’s assume you put down 20% as to avoid PMI.  Primary Mortgage Insurance is just as it says.  If you can’t put 20% down on your property the bank needs insurance on it in case of a default.  You’re considered more at risk if you have less than 20%

That’s 50,000 down.  When considering a mortgage we look at “PITI” Principal, Interest, Taxes, Insurance.  When owning property for the long term always remember, property tax will go up.  If you’re living in Chicago/NY/other large metro areas.  They will go up almost every year.

Now in 2020 you can get a 30-year mortgage for around 3.2% which is low.

Let’s just look at principal and interest.

Rates can eventually go up in the future, but not anytime soon.  Let’s take this example of a rate of 5.31% this is the rate at which you pay double the amount for the house.  Look below you’re paying 2x the amount for the house over the course of 30 years.  I doubt anyone in the modern area is going to live in the same house for 30 years.  However, no matter how long you live there, you’re paying double.  Just look up a mortgage table or amortization table and type in your rate and amount you’re borrowing.  I guarantee you that you’re not paying the list price for your house, you’re paying a lot more.  To make it clear to you and to get this concept in your head, just change the way you say “mortgage” and start referring to it as your “30-year debt obligation”.

Mortgage table

Unless you buy a new, high end house there will be maintenance for the next 30 years. Including…

Roof, A/C, grass, snow, driveway, upgrades, kitchen, bath, windows.  Add this to the price of the house plus mortgage.

Insurance is usually not too expensive. What most people don’t know is, your insurance rate is based on your credit score and how many claims you’ve had, mainly in the past 5 years. So if you’re struggling to put down that 20% and you’re young, you’ll have a higher rate than someone twice your age with better credit. Take this into consideration when buying a house or car. Talk to your insurance agent.

But won’t the property increase in value?

According to the Case Shiller Index real estate after inflation year over year doesn’t increase in value, rather it just keeps up with inflation.  Yes, seriously, I know that is shocking!  Unless you are purchasing in a soon to be gentrified area, and you are correctly timing the market.  You’re basically keeping up with inflation.

Still think real estate is the best investment? And this is Waterfront property.

Opportunity cost

The money you put down if any could be put somewhere else to grow.  Or somewhere to save until you can buy in cash.

Say you had/have now $50,000 to put down. Let’s run the previous scenario if you put that money in the S and P and didn’t touch it.  Now this whole time you would have been paying rent.  However, 50K in 2002 would have grown 4x+ by the end of 2020 and you could have now bought this property in cash. With some left over.  (See below)

Rental

With a rental if the roof is leaking just take pictures and don’t pay the rent until its fixed.  If the refrigerator goes out or the laundry machine, just call the landlord and have him fix it. If your windows are old and leaking, well he probably won’t fix it, so just move. That’s another one of the main advantages you have while renting.  The freedom to pack up and leave.  What about if you want to leave early? Just sign 1 year leases at a time.  Even if you want to leave after 9 months, just leave break the lease.  If your city allows landlords to collect security deposits, you’ll be out that. But you have your freedom and you don’t have a 30-year debt obligation.
Besides when you buy your house you’re not going to live there for 30 years.

Just rent where you live, until you can pay cash.

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