Well, I think nearly anyone, no matter how smart/educated they are can fall for a scam with the right techniques or circumstances (not to mention changing technologies with AI voice replication, etc.!). And you list a number of very legal, and very predatory not-quite-scam ones that can be dangerous.
A sadly huge part of industry is peddling dreams at an “affordable” price, and homeownership is one of the BIG dreams. Again, I’m not saying it’s a scam, or even a bad idea, but when everyone is selling you the sizzle, it’s important to read the fine print. For example, getting stuck in a series of endless 2-3 year cell phone upgrades, or even a 5-7 year series of car upgrades is more-or-less recoverable. 50 years of obligation to anything requires that much more planning ideally.
Then again I should say, lots of people get life-long expensive commitments in terms of kids at an early age, and many to most of them seem to manage.
That’s a BIG presumption. I’m pretty financially literate, but I’ll admit that when I save a couple hundred bucks a month on something like this, it almost never goes into investments or anything useful, but rather into the general fund where it most likely gets spent on whatever fun stuff minor surpluses get spent on.
It’s like getting a raise at work; if you’re living within your means and smart, you’ll just set up your direct deposit to just put that excess straight into a savings account each month. But nobody consistently does that; most people like having a bit extra to spend on fun stuff.
I think the trick may be to go in knowing what your end goals are, beyond “I need a phone.” I think a lot of people don’t really plan for the long haul beyond “I want to buy a house.” And that’s when they get you. Lots of stuff looks idiotic if you’re planning to live there for 15+ years, but if you’re coming off a renting situation, and grew up with parents who also rented, you may not know what to look out for.
But still….you need to account for it. It went somewhere. You spent the extra $150 a month on hookers and blow. Okay…what was two decades worth of cocaine binges worth to you? Was it worth $400,000? Then the 50 is still the better option. You need to give me a dollar figure, or there’s really no point in comparing the two mortgages.
The problem is that many people don’t think that way until it’s too late. If they ever do. Carrie Bradshaw saying "“I spent $40,000 on shoes and have no place to live!” isn’t much of an exaggeration .
One thing I think shouldn’t get lost in this discussion …
Housing has some parallels with oil and gas extraction: it’s very complicated, very labor intensive, and very capex intensive. They also all deal with finite commodities.
When everybody in the developed world can manufacture a widget, relying on relatively abundant component parts or raw materials, the market can press hard with downward pricing pressure.
Meanwhile, the things that keep finite commodities scarce – from a purely economic standpoint – are not the enemies of the players in these industries (eg, fossil fuel, housing). They are the friends.
Just like with higher education and health care, the primary problem is the trajectory of the underlying costs. Nearly everything else is trimming around the edges.
I remember watching a documentary about Vancouver, BC’s efforts to address the affordable housing program. I’ll have to look into their progress:
This is also another case that – like minimum (vs. living) wage – I’m reminded that wealthy people money (ie, institutional investment in the housing market) is every bit as inflationary as poor people money.
ISTM that housing has become a standout example of a market failure, and – as some people say about higher ed – the government making the capital more available to the buyer will primarily also be inflationary.
I was thinking more in the sense that most comparisons are comparing how that extra money could be invested in some way, vs. putting it into a mortgage. Then I was pointing out that in reality, few people actually invest that extra money.
Of course, there’s a value to whatever you spend it on, but that’s a vague and difficult valuation. Is it worth it to have bought 15 years of more expensive beer versus having 15 years of additional equity in your home? Who knows? How do you actually make that comparison?
I learned a new phrase back in 2008 after the housing bubble burst: Strategic default. It’s when someone who is financially capable of paying their mortgage stops doing so, usually because the value of the property is so much less than the mortgage itself. I suspect with a 50 year mortgage you’re going to see a good number of people who just decide they’re never going to pay it off anyway, so they’ll take a hit to the credit rating, stop paying, and move elsewhere.
Bank very much cares about asset value, independent of interest. Bank loans $500K, guy walks away, bank auctions it for $400K. That’s a lot of interest to make up.
I know you are just making an example, but at current 30-year rates a $500k loan financed for 50 years (again, assuming you got the same rate as current 30-year rates - it would probably be higher) the bank would earn that $100k back in ~3 years.
And after those three years, the borrower has paid that $98k in interest to accrue a whopping $4,400 in equity.
As you get close to retirement, you are looking for safe investments. Paying off the mortgage is one of the safest. Using your equity to invest in stocks is among the most risky. You need to be take on significant risk just to break even. Margins are for gamblers.
At the time, I saw an interview with a representative from the banking industry who said it was immoral for people who had the financial wherewithal to pay their mortgage to default. The same organization he represented had strategically defaulted on their building because they were so far underwater. The unmitigated gall of this man to stand in front of a televised audience, chiding people for doing what his organization did just boggled my mind. Looking back that seems almost quaint as this is a daily ritual of the Republicans.
