# Why would anyone get a 30 year loan on a house? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [March 2, 2011, 4:43pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227 "2011-03-02T16:43:23Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Atrael](https://avatars.discourse-cdn.com/v4/letter/a/6a8cbe/32.png) [@Atrael](https://boards.straightdope.com/u/Atrael)\ **Post date:** [March 2, 2011, 6:02pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/21 "2011-03-02T18:02:33Z")
> [@Enderw24](#): > > The problem with your hypothetical is that you’re changing too many variables. When going from the 30 year to the 15 year you’re not only changing the loan time and the loan amount, you’re changing the entire house that’s being purchased! > It’s like asking why someone would buy a nice midsized car when you could have a perfectly serviceable five year old compact and save yourself $15,000! Why would people just throw their money away like that? This…and also: > [@ZipperJJ](#): > > Why not? If the monthly payments are right, and you stay in your house for 30+ years then who cares how much “extra” you’ve paid? You’ve had a house for 30+ years and now own a house. Why would you want “something a bit less” if you’d be more comfortable in the other place for 30+ years? > > Some people don’t think of a house as a quick investment or a temporary holding place. You can’t take that extra money with you, but it sure is nice to live in a place you love. My house is my home. It’s not a stopping point on some journey to someplace else. The neighborhood was carefully chose, we renovated an existing house, so the design and layout were chosen to fit on the piece of land the original house sat on. We bought with the idea that we’ll still be in the house in 30 years, indeed that it would someday pass to our kids. So we spent more on the renovation than the house is really worth, so what? We’re not in this to flip it. We can grow with the house…getting a smaller home for less money for a shorter loan would have gotten us a house that couldn’t grow with us. That doesn’t make any sense at all. If you’re single and just looking to get something so you’re not renting, then maybe it makes sense, but not if you have a family and are setting down roots in an area. Also you do know that whatever interest you pay on your loan can be deducted from your gross income during tax time, right? So if I’ve paid $16K interest on my first mortgage, and $3K on my second, I can take $19K right off of my income. So instead of making $80K for tax purposes, I make $61K. You see the benefit? ---
**Author:** ![Wallenstein](https://avatars.discourse-cdn.com/v4/letter/w/b5a626/32.png) [@Wallenstein](https://boards.straightdope.com/u/Wallenstein)\ **Post date:** [March 2, 2011, 6:12pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/22 "2011-03-02T18:12:01Z")
> [@snailboy](#): > > Are you saying you couldn’t find any smaller house, townhouse, condo, or anything in a good neighborhood for 2/3 the value of your current house? Yes, exactly this. We have a small two-bed house with a small garden in a nice part of town. Only cheaper options locally are flats (appartments), so no garden, extra overhead for maintenance fees, and stairs to haul a buggy (stroller?) up. Plus they are not 2/3 of the price, more like 4/5. So not worth it. Where we are is walking distance to shops, and on bus routes to my wife’s university campus. Moving further out means buying an extra car, with additional monthly costs, and extra pressure on our time. Our 35yr loan means we’ve had a stable environment to bring up our 3y/old daughter, and it’s allowed my wife to complete her medical degree. Friends who opted for a cheaper option have either struggled with lack of space, or have had to put up with the normal antisocial crap you get in rougher areas. The extra we’ve paid over 5 years in mortgage interest will be balanced by her first year’s salary as a doctor, with that benefit growing as her career progresses. Plus in the UK it’s normal to remortgage every couple of years - we are on our third two-year fixed deal, again to allow us to budget while every penny counts. ---
**Author:** ![CandidGamera](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/candidgamera/32/2878_2.png) [@CandidGamera](https://boards.straightdope.com/u/CandidGamera)\ **Post date:** [March 2, 2011, 6:21pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/23 "2011-03-02T18:21:46Z")
> [@Enderw24](#): > > The problem with your hypothetical is that you’re changing too many variables. When going from the 30 year to the 15 year you’re not only changing the loan time and the loan amount, you’re changing the entire house that’s being purchased! > It’s like asking why someone would buy a nice midsized car when you could have a perfectly serviceable five year old compact and save yourself $15,000! Why would people just throw their money away like that? Exactly. I looked at dozens of houses before I found one I thought I’d be happy in, even though all of them had water, power, four walls, and a roof. House hunting is an endurance trial. ---
**Author:** ![BetsQ](https://avatars.discourse-cdn.com/v4/letter/b/fbc32d/32.png) [@BetsQ](https://boards.straightdope.com/u/BetsQ)\ **Post date:** [March 2, 2011, 6:43pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/24 "2011-03-02T18:43:32Z")
> [@snailboy](#): > > I don’t understand what you mean by this. You mean a deduction on income taxes? Yes. The government wishes to encourage home ownership, so interest on mortgages is tax deductible. Don’t forget about the effect of the market on equity. We haven’t paid off much of our loan, but the market value of our home is about 1.5x what we bought the house for 8 years ago. Rent on a three bedroom apartment would be substantially higher than our mortgage payments for a three bedroom single family home. Also, a lot of the cost of a home is location. We have a quite modest house, but we’re within walking distance of the Metro and the kids go to really good schools. ---
**Author:** ![snailboy](https://avatars.discourse-cdn.com/v4/letter/s/97f17d/32.png) [@snailboy](https://boards.straightdope.com/u/snailboy)\ **Post date:** [March 2, 2011, 6:59pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/25 "2011-03-02T18:59:52Z")
> [@Baracus](#): > > Well, why wait just 5 years then? Think about how much _more_ money you would have if you waited 10 or 20 years! Never getting the larger house if you can fit in the smaller townhouse would be the most financially rational thing to do. Obviously a lot of people place a premium on having the larger house. Because what you pay for a house is an investment that’ll most likely increase in value in the long run. What you pay on interest is money that you’ll never see again. > [@ZipperJJ](#): > > I have a 30 year. I pay an extra $100/mo towards it, because I can afford it. You don’t exactly match my scenario then. > [@](#): > > My friends all live in $150-180k homes in suburban Ohio, with 30 year mortgages. They have kids so they can’t afford bigger payments or smaller homes. I’m not sure what you can get for what there so I don’t know if they could’ve gone smaller, but one certainly could raise a small family in a cheaper house here. > [@](#): > > Two sets of friends had to move suddenly and now have two mortgages because they can’t sell. Lucky for them they have 30 year mortgages and not 15, because they would be paying a lot more monthly for houses they don’t live in. No they wouldn’t. They’d be paying the same amount and since it sounds like they’re asking for more than it’s worth, they’d be hurt a lot less if it was a cheaper house that they had built a lot more equity on. > [@](#): > > 15 year mortgages are hella scary when you’re a young person/family. You don’t want to be locked in to a higher payment. What if we need repairs on this house we’re about to buy? What if you’re going to have a kid/more kids? What if you lose your job? What if your monthly income goes down? What if you have to move and can’t sell? Even if better rates come up, will you have the $5-10k cash on hand it might take to refinance? You wouldn’t be locked into a higher payment at all. Utilities and maintenance on it would likely be cheaper. Everything you list is a good reason to get a cheaper house with a 15 year mortage. > [@Wallenstein](#): > > Yes, exactly this. Well that’s an exception then. I live in East Texas where the median income will get you a decent place on a 15 year mortgage, probably even 10. I know not all places are like this. ---
**Author:** ![snailboy](https://avatars.discourse-cdn.com/v4/letter/s/97f17d/32.png) [@snailboy](https://boards.straightdope.com/u/snailboy)\ **Post date:** [March 2, 2011, 7:02pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/26 "2011-03-02T19:02:35Z")
Oh, and about the interest being tax-deductible, so you may get a small amount of it back… That doesn’t negate the fact that you’ll still be paying an obscene amount of it. ---
**Author:** ![Wheelz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wheelz/32/5718_2.png) [@Wheelz](https://boards.straightdope.com/u/Wheelz)\ **Post date:** [March 2, 2011, 7:03pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/27 "2011-03-02T19:03:50Z")
> [@snailboy](#): > > I’m not sure how factual of an answer I can get to this. I’m not thinking of getting a house in the near future, but I was just playing around with the numbers. I assumed a 5% interest rate as I believe that’s pretty close to average and didn’t even consider the down payment so add that to the value of the home. If you buy a $200,000 house (a pretty nice house around here but the numbers scale) with a 30 year loan, you’ll pay roughly $187,000 in interest alone, nearly as much as the house. After 5 years, you’ll have paid only $16,300 of the principle. > > On the other hand, you’d be making nearly the same monthly payments if you bought a $135,000 house/townhouse/whatever on a 15 year loan, would only pay $57,000 in interest, and after 5 years, you’ll have paid off $34,300 of the principle. If you move in a few years, you’ll be much better off with the 15 year loan with very little chance of owing more than it’s worth and if you stay, you can pay off the cheaper house and trade it in for that better house and get another 15 year loan. Sure house values will have risen by then but the interest you saved and rising wages should more than make up for it. You’d have to settle for a lesser home for a while, but most people get a lot more house than they really need anyway and 2/3 the price isn’t exactly going from Beverly Hills to Compton. > > So why do so many people get these 30 year loans? Is there a financial reason or are they just trying to get the best they can regardless of the debt they’re putting themselves into? Where I live, $200,000 is about the absolute minimum you can pay for any decent abode with more than one bedroom and one bathroom. Something even remotely liveable for $135,000? Good friggin’ luck. So, in my case, the answer to your question is “Because I don’t want to live in a crap-hole.” ---
**Author:** ![corkboard](https://avatars.discourse-cdn.com/v4/letter/c/e9bcb4/32.png) [@corkboard](https://boards.straightdope.com/u/corkboard)\ **Post date:** [March 2, 2011, 7:24pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/28 "2011-03-02T19:24:14Z")
> [@snailboy](#): > > Like I said, the numbers scale. Can you really say there aren’t people in New Jersey with 30 year loans on houses that are really more than they need? I’m not saying you need to live in the ghetto, but many if not most people could get by just fine buying a less expensive place and **would come out better in the long run** by doing so. I don’t recall saying that at all. I’m sure there are plenty of people with 30-year mortgages on homes that are much more than they need- I drive by some of them every day. I wasn’t speaking for the entire population of New Jersey. But when you say “would come out better in the long run”, ‘better’ how? With more money in their pocket after 30 years? Maybe. But money isn’t everything, my friend. There are many factors that go into the blender when one considers buying a home. Location; quality of neighborhood; quality of schools; proximity to schools, shopping, jobs, family and friends; affordability; crime; quality of the house itself; type of home; room for pets, kids & gardening… Sure, a smaller home or townhouse in a neighborhood with middling school quality that was 20 minutes further from my job than I am now and further from my family and my inlaws with no yard for my kids or pets- that was certainly an option. But after 30 years, would I really be better off in so many ways that matter, other than financially? No, I wouldn’t. > [@](#): > > I don’t understand what you mean by this. You mean a deduction on income taxes? Yes. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [March 2, 2011, 7:34pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/29 "2011-03-02T19:34:05Z")
> [@kayaker](#): > > I bought my home with a 30 year mortgage. I then paid every cent I could spare each month, paying the loan off in just under 5 years. Worked for me. This is my story exactly. I paid off my 30-year loan two years ago. ---
**Author:** ![Tastes\_of\_Chocolate](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tastes_of_chocolate/32/3232_2.png) [@Tastes\_of\_Chocolate](https://boards.straightdope.com/u/Tastes_of_Chocolate)\ **Post date:** [March 2, 2011, 8:23pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/30 "2011-03-02T20:23:09Z")
> [@snailboy](#): > > Because with the money you save, you could have something even better for your second house, or could end up in the same house along with some investments, or whatever. Every time you sell your house and buy a new one, assume that you are going to spend about 8% of the value of your old house (not your equity, but the sale price) on that sale. You’ll be paying a real estate agent to sell the old one, closing costs on the new loan, and time and/or money to physically move your belongings. > [@snailboy](#): > > Oh, and about the interest being tax-deductible, so you may get a small amount of it back… That doesn’t negate the fact that you’ll still be paying an obscene amount of it. Your “small amount” of it can be 1/4 to 1/3 of your interest payment. Mortgage interest, in the US, is fully deductable from your federal income tax, which means it’s deductable from your state as well, in all the places I’ve lived. Moving every 5 years, with any kind of mortgage, is a great way to never get any closer to paying off a mortgage. Assuming a $200k mortgage, 30 years, at 5%. At the end of 5 years, you have paid off $17k. If you sell the house for $200k, you will pay $12k to the realtor, and $2k-4k for closing costs on a new loan. You’re much better off staying in place, instead of house hopping. ---
**Author:** ![snailboy](https://avatars.discourse-cdn.com/v4/letter/s/97f17d/32.png) [@snailboy](https://boards.straightdope.com/u/snailboy)\ **Post date:** [March 2, 2011, 8:57pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/31 "2011-03-02T20:57:27Z")
> [@Tastes\_of\_Chocolate](#): > > Every time you sell your house and buy a new one, assume that you are going to spend about 8% of the value of your old house (not your equity, but the sale price) on that sale. You’ll be paying a real estate agent to sell the old one, closing costs on the new loan, and time and/or money to physically move your belongings. Which is all the more reason to buy a cheaper house until you’re more stable and have more equity. > [@](#): > > Your “small amount” of it can be 1/4 to 1/3 of your interest payment. Mortgage interest, in the US, is fully deductable from your federal income tax, which means it’s deductable from your state as well, in all the places I’ve lived. You’d have to be making in the millions to have that much of your income taxed. For more average people, it’s more like 10 to 15%. ---
**Author:** ![muldoonthief](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/muldoonthief/32/3188_2.png) [@muldoonthief](https://boards.straightdope.com/u/muldoonthief)\ **Post date:** [March 2, 2011, 9:03pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/32 "2011-03-02T21:03:18Z")
> [@snailboy](#): > > You’d have to be making in the millions to have that much of your income taxed. For more average people, it’s more like 10 to 15%. Millions? Try $34,000 AGI for single, $68,000 AGI for married. That’s where you get into the 25% marginal tax rate for 2010. ---
**Author:** ![SciFiSam](https://avatars.discourse-cdn.com/v4/letter/s/47e85d/32.png) [@SciFiSam](https://boards.straightdope.com/u/SciFiSam)\ **Post date:** [March 2, 2011, 9:08pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/33 "2011-03-02T21:08:34Z")
Because people would rather pay a little more to live in a place they actually want to live than pay less and hate coming home every day. And if the monthly payments are almost the same, it won’t feel like paying much more anyway. If there are equally-good houses available for $200,000 and $135,000, then people would indeed be insane to choose the more expensive ones. But there must be reasons why the more expensive ones are more expensive. Mortgage payments also have side-advantages. They often get taken into account if you are eligible for any financial help in the future, or at least the interest part does. Like, in the UK, when calculating how much loan (or even grant) a university student under 21 is entitled to, the parents can deduct their mortgage payments from their income. If they become unemployed, their mortgage interest can be paid by the government - for a time, and not always in full, but it’s better than nothing. I bet there are similar side-advantages in the US. ---
**Author:** ![Minnie\_Luna](https://avatars.discourse-cdn.com/v4/letter/m/4bbf92/32.png) [@Minnie\_Luna](https://boards.straightdope.com/u/Minnie_Luna)\ **Post date:** [March 2, 2011, 9:27pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/34 "2011-03-02T21:27:23Z")
When we bought our house for $225K we had a combined household income of $90K a year. We could not afford a 15 yr mortgage, but it was just post 9-11 and we knew we had to get in on the housing market then or we wouldn’t be able to get the neighborhood we wanted. 9 years later, our household income has doubled and we can afford to pay extra on our mortgage and will be able to pay it off earlier. We have a lot of friends in situations similar to ours. We live in a high cost of living area. A house in a middle of the road school district will easily be priced 30% lower than a comparable house in a much better school district. Comparable homes in a low ranking school district will be as much as 50% lower. For example: [this house](http://www.realtor.com/realestateandhomes-detail/7221-Wayne-Ave_Upper-Darby_PA_19082_M39493-30265) is in a low ranking school district. 5 bedrooms and 5 bathrooms, 0.25 acres. Closest I could find in a high ranking school district was a 5 bedroom, 2.5 bath of similar age and similar lot size [was this one.](http://www.realtor.com/realestateandhomes-detail/730-Yale-Ave_Swarthmore_PA_19081_M30027-78474) $200K price difference and they are only about 5 miles from each other. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [March 2, 2011, 9:33pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/35 "2011-03-02T21:33:23Z")
> [@muldoonthief](#): > > Millions? Try $34,000 AGI for single, $68,000 AGI for married. That’s where you get into the 25% marginal tax rate for 2010. But most people with that income take the standard deduction. ---
**Author:** ![muldoonthief](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/muldoonthief/32/3188_2.png) [@muldoonthief](https://boards.straightdope.com/u/muldoonthief)\ **Post date:** [March 2, 2011, 9:45pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/36 "2011-03-02T21:45:16Z")
> [@Ludovic](#): > > But most people with that income take the standard deduction. But anyone who does have an AGI above that, and itemizes, is getting back 25% of what they paid in mortage interest. Or at least 25% of the amount that the mortgage + all other deductions is greater than the standard deduction. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [March 2, 2011, 10:09pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/37 "2011-03-02T22:09:33Z")
I took out a 30 and paid it in 10 only because I realized 5 years into it I could pay it in 5. I suppose it comes down to whether or not you want to house hop up to your dream home or work your way up. ---
**Author:** ![pulykamell](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pulykamell/32/3166_2.png) [@pulykamell](https://boards.straightdope.com/u/pulykamell)\ **Post date:** [March 2, 2011, 10:42pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/38 "2011-03-02T22:42:17Z")
> [@snailboy](#): > > So why do so many people get these 30 year loans? Is there a financial reason or are they just trying to get the best they can regardless of the debt they’re putting themselves into? Isn’t there a perfectly rational economic argument to take the 30-year loan instead of paying off the house? Suppose I have the ability to buy a house outright. Instead of putting $200K straight into the house, wouldn’t the math work out in your favor to take that $200K, invest it in say an S&P500 ETF (assuming you believe the market to grow at a 7-8% rate), rather than pay the house off outright? I’m in a position where I can liquidate my non-retirement assets and almost pay off an entire house. I don’t see any good reason to do so–it seems to me that keeping the money in the market and taking out a long mortgage should be better financially in the long run. Plus I get to deduct mortgage interest. What am I missing? ---
**Author:** ![Markxxx](https://avatars.discourse-cdn.com/v4/letter/m/5daacb/32.png) [@Markxxx](https://boards.straightdope.com/u/Markxxx)\ **Post date:** [March 2, 2011, 10:55pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/39 "2011-03-02T22:55:15Z")
Part of it is houses (till recently) usually went up in value. And people didn’t stay. This was the plan behind balloon payments To oversimplify here’s how it would work. You take a 30 year mortage on a house and pay $800/month. Now you can’t get a flat as big for that rent. The house is worth $150k. After five years your $800/month payment triples to $2,400 So after living in the house 4 years you sell it. But the house value went up. Now it’s worth $200k So you sell it and use that bit of earned money to buy a $250k house. The payments on his are $1,000/month for 5 years, then the balloon payment kicks in So again you live there for four years and sell the $250K house, but it’s now worth $400K And so forth, then by the time you’re ready to retire, you buy a less expensive $100K condo and keep all the money you made. This only works if housing prices consistantly go up. And for awhile they were. This of course didn’t work, but still over the long term houses are good investments, 'cause they will go up in value over long, LONG periods of time. Again, that was just a vast oversimplification. It’s not the length of the mortgage that matters as you’re only going to live there a few years. ---
**Author:** ![SciFiSam](https://avatars.discourse-cdn.com/v4/letter/s/47e85d/32.png) [@SciFiSam](https://boards.straightdope.com/u/SciFiSam)\ **Post date:** [March 2, 2011, 11:01pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/40 "2011-03-02T23:01:23Z")
> [@pulykamell](#): > > Isn’t there a perfectly rational economic argument to take the 30-year loan instead of paying off the house? Suppose I have the ability to buy a house outright. Instead of putting $200K straight into the house, wouldn’t the math work out in your favor to take that $200K, invest it in say an S&P500 ETF (assuming you believe the market to grow at a 7-8% rate), rather than pay the house off outright? I’m in a position where I can liquidate my non-retirement assets and almost pay off an entire house. I don’t see any good reason to do so–it seems to me that keeping the money in the market and taking out a long mortgage should be better financially in the long run. Plus I get to deduct mortgage interest. What am I missing? In the UK it used to be common to do exactly that, and was called an [endowment mortgage](http://en.wikipedia.org/wiki/Endowment_mortgage). One of the reasons they’re not popular now is that there’s always the risk that you’ll lose the money, and this happened to a a large enough proportion of homeowners that other people were scared away. But yeah, it’s true that a mortgage is one of the best value loans you can ever get. [Previous page](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227.md?page=1) [Next page](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227.md?page=3)