"Today" does it make sense to make 20% down payment?
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that $100k house bought in the 1980's could've been refinanced into a lower interest rate as time went on. the payment would've gotten MUCH cheaper in real dollars, VERY quickly. Housing was a great investment back then.
Not in Charlotte. Most of the new housing built during that period was small and badly built because of the very high interest rates people could not afford more. As rates fell the middle class moved out and these places became rundown and a bad investment. I know of numerous neighborhoods where people paid to get in lotteries for a chance to buy a house that have become close to ghettos now.
The vast majority of this construction took place around Eastland Mall, around what is known as East Harris Blvd today, N. Tryon north of UNCC, and down on Archdale. Hardly what you would call desirable places these days. I know a person that made a good salary then who, because of the 16% loan could only purchase a 2 bedroom, no garage, modular home (they bring it in on a truck) on a tiny postage stamp in the Hickory Grove area in 1984. Neighborhood was full of professionals then. Not so these days.
"4% yearly return barrier" is artificial because it assumes that your home (and your 20% ownership of it) will at least maintain its value.
Your fundamental fault with this line of thinking is that somehow your mortgage (which you owe to the finance industry) is going to change based on the value of the house. It does not. Unless your plan is bankruptcy (difficult) or foreclosure by the bank (dangerous) then you owe the money and interest regardless of the house price. Paying off that loan early has the same effect on your financial life no matter what the house price is doing.
Furthermore, if you live in a paid for house, you really don't care if real estate prices fall as you will always get something for the house when you sell. If you sell. If you owe close to 100% on the loan, and your house value falls significantly below this and you want to move, then you are trapped in it like a rat in a trap. Or you are begging the banksters. Neither is a desirable place to be as millions will tell you these days.
If your fear are falling house prices, then you really should reassess the reasons for buying a home. If you purchase a home that is so expensive that you will get killed financially by falling prices, then you are not ready to buy said home. Save up more money or buy something less expensive.
Your fundamental fault with this line of thinking is that somehow your mortgage (which you owe to the finance industry) is going to change based on the value of the house.
You evidently did not understand what I wrote. I never said or implied that the mortgage would change based on the value of the house.
What I said was that the during that time period, peoples' payments got cheaper in real dollars. When wages are increasing at 8 - 10% annually that tends to happen.
This is essentially paying off your mortgage with cheaper dollars than you borrowed, a neat little trick the baby boomers got to experience.
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Furthermore, if you live in a paid for house
if you live in a paid-for house then you don't need a mortgage , and you're pretty much outside the scope of this thread.
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If your fear are falling house prices, then you really should reassess the reasons for buying a home. If you purchase a home that is so expensive that you will get killed financially by falling prices, then you are not ready to buy said home. Save up more money or buy something less expensive.
"Buy something less expensive" is common (and useless) advice from older folks who bought their home in a totally different time.
Not in Charlotte. Most of the new housing built during that period
I didn't say anything about the new housing built in that period.
I said that if you took out one of these high-interest rate loans in the 1980s, you probably made a great investment, since you probably ended up paying the bulk your mortgage off years later with much cheaper dollars.
I see no reason to think that current buyers will enjoy this same sort of macroeconomic tailwind that previous generations of buyers have.
You evidently did not understand what I wrote. I never said or implied that the mortgage would change based on the value of the house.
What I said was that the during that time period, peoples' payments got cheaper in real dollars. When wages are increasing at 8 - 10% annually that tends to happen.
This is essentially paying off your mortgage with cheaper dollars than you borrowed, a neat little trick the baby boomers got to experience.....if you live in a paid-for house then you don't need a mortgage , and you're pretty much outside the scope of this thread......"Buy something less expensive" is common (and useless) advice from older folks who bought their home in a totally different time.
In regards to living in a paid for house, it has everything to do with this topic. This is your goal. Someone who doesn't understand this, isn't going to understand why you need to put down 20%.
On inflation, you also make an error. Someone holding a 10% mortgage in a period of 2% inflation is paying an 8% penalty. This is doing them no favor. They either have to refinance, and take the hit on the cost of doing that, or simply retire the loan (recommended)
I will also point out as a side to that bad assumption is that household wages have been falling. The average household income in the USA has dropped to 1993 levels. And this of course highlights exactly my point about retiring debt. You are in 100% in making that happen. The rest, assumptions about inflation, other investments, jobs, wages, etc you are not. Your best bet for your financial future is to handle the things you can control and forget planning around the ones you can't.
I didn't say anything about the new housing built in that period.
I said that if you took out one of these high-interest rate loans in the 1980s, you probably made a great investment, since you probably ended up paying the bulk your mortgage off years later with much cheaper dollars.
I see no reason to think that current buyers will enjoy this same sort of macroeconomic tailwind that previous generations of buyers have.
You are making an "assumption" about what happened to buyers of homes in the 1980s. I've explained why this wasn't the case and gave examples, in Charlotte, where anyone can check on those results. You are free to believe that things went well for these buyers, but you haven't offered up any proof or evidence beyond that of opinion.
I've never said current buyers will "enjoy" the same situation as that in the 1980s, though I think you will find few people who believe that a 15% mortgage is a benefit. What I have done is state a plan for paying off a house as soon as possible and WHY that is good for your financial future. It doesn't depend upon what decade you happen to have been born in.
Has anyone noticed it's the same person constantly bickering on many of these threads? Give it a rest, please. Each thread I try to keep up with is all soiled with this tit-for-tat nonsense, and so I just give up on reading the thread altogether and move on to another thread, just to see more of the same. *Sigh*
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