# 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:** 3
**Author:** ![Balthisar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/balthisar/32/2825_2.png) [@Balthisar](https://boards.straightdope.com/u/Balthisar)\ **Post date:** [March 3, 2011, 12:02am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/41 "2011-03-03T00:02:08Z")
I got the most expensive house that I could afford with a 30 year loan. And I truly do mean “afford.” As in, completely conventional. I hate moving, and I still absolutely love my house and neighborhood these 6.5 years later. Of course I have significantly more buying power these days, and with the depressed market, significantly more opportunities for getting into a bigger and fancier house, but why would I? Unless 11-Mile (it used to be 8-Mile) reaches me up here before I retire, I have no reason to sell. ---
**Author:** ![Pai325](https://avatars.discourse-cdn.com/v4/letter/p/c68b51/32.png) [@Pai325](https://boards.straightdope.com/u/Pai325)\ **Post date:** [March 3, 2011, 1:38am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/42 "2011-03-03T01:38:29Z")
Why do people get four and five year car loans? Same reason, I guess, but a car goes bad sooner. ---
**Author:** ![River\_Hippie](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/river_hippie/32/26_2.png) [@River\_Hippie](https://boards.straightdope.com/u/River_Hippie)\ **Post date:** [March 3, 2011, 2:14am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/43 "2011-03-03T02:14:38Z")
I took a 30 year to keep the monthly payment as low as possible so I would be able to make it on unemployment if need be. And it was a couple different times. I later refinanced to a 15 and payed that off early. ---
**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 3, 2011, 3:07am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/44 "2011-03-03T03:07:12Z")
[Here’s a brief article](http://www.consumerismcommentary.com/ben-stein-invest-or-pay-off-mortgage/) that goes over some of the basics of what I mentioned upthread. This author’s view (and Ben Stein’s) is that with mortgage rates as low as they are, it’s better to invest the money you would have put into aggressively paying off a mortgage into an investment. Paying off a mortgage ASAP does not necessarily make the most financial sense. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [March 3, 2011, 4:01am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/45 "2011-03-03T04:01:36Z")
> [@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? You seem really focused on the amount of interest paid over the term of the loan. What if I offered you a $1 million 100-year loan at 2% interest–would you take it? ---
**Author:** ![Wallenstein](https://avatars.discourse-cdn.com/v4/letter/w/b5a626/32.png) [@Wallenstein](https://boards.straightdope.com/u/Wallenstein)\ **Post date:** [March 3, 2011, 9:35am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/46 "2011-03-03T09:35:50Z")
House ownership is not necessarily a end in itself, but for most people it’s a means to an end. While I’m saving money by not paying off my mortgage as fast as possible, I’m able to spend it on other things and still have a roof over my head. Why live on beans and toast for 15 years to pay off a mortgage? Pay it off over 30yrs and enjoy a steak now and again. ---
**Author:** ![snailboy](https://avatars.discourse-cdn.com/v4/letter/s/97f17d/32.png) [@snailboy](https://boards.straightdope.com/u/snailboy)\ **Post date:** [March 3, 2011, 2:52pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/47 "2011-03-03T14:52:49Z")
Well you guys have given me some good reasons. I still think _some_ people do it irresponsibly, but not all. > [@Rand\_Rover](#): > > You seem really focused on the amount of interest paid over the term of the loan. > > What if I offered you a $1 million 100-year loan at 2% interest–would you take it? If I’m confident I can invest the money at a higher rate, sure. I wouldn’t screw over my children/grandchildren by passing on such a debt though. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [March 3, 2011, 3:05pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/48 "2011-03-03T15:05:39Z")
> [@snailboy](#): > > If I’m confident I can invest the money at a higher rate, sure. I wouldn’t screw over my children/grandchildren by passing on such a debt though. Well, there’s the answer to the question in the OP, then. The US stock market has returned 10% in every rolling 20-year period since 1929. So, I’m paying off my mortgage and student loans as slow as they’ll let me so I can increase the amount I have in the market. ---
**Author:** ![snailboy](https://avatars.discourse-cdn.com/v4/letter/s/97f17d/32.png) [@snailboy](https://boards.straightdope.com/u/snailboy)\ **Post date:** [March 3, 2011, 3:11pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/49 "2011-03-03T15:11:49Z")
> [@Rand\_Rover](#): > > Well, there’s the answer to the question in the OP, then. The US stock market has returned 10% in every rolling 20-year period since 1929. So, I’m paying off my mortgage and student loans as slow as they’ll let me so I can increase the amount I have in the market. If it returns 10% in 20 years, wouldn’t it be wiser to pay off a loan that costs 5% every year? Or do you mean it returns 10% per year when averaged over a 20-year period? ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [March 3, 2011, 3:21pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/50 "2011-03-03T15:21:21Z")
> [@pulykamell](#): > > [Here’s a brief article](http://www.consumerismcommentary.com/ben-stein-invest-or-pay-off-mortgage/) that goes over some of the basics of what I mentioned upthread. This author’s view (and Ben Stein’s) is that with mortgage rates as low as they are, it’s better to invest the money you would have put into aggressively paying off a mortgage into an investment. Paying off a mortgage ASAP does not necessarily make the most financial sense. However, there are other factors at work - namely, risk. Most people’s goal is not simply to maximize the cash potential at the end of a certain period, but to do so with a certain acceptable minimum of risk. Taking on a huge mortgage at a low rate and investing in equities can be a risky strategy. If mortgage rates go up, or the stock market crashes - you could easily be up shit’s creek. Paying off a mortgage fast is a low-risk strategy because, even if the real estate market tanks, if you do not plan to use your house as an investment you can still live in it and not care. ---
**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 3, 2011, 5:35pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/51 "2011-03-03T17:35:48Z")
> [@Malthus](#): > > However, there are other factors at work - namely, risk. Most people’s goal is not simply to maximize the cash potential at the end of a certain period, but to do so with a certain acceptable minimum of risk. > > Taking on a huge mortgage at a low rate and investing in equities can be a risky strategy. If mortgage rates go up, or the stock market crashes - you could easily be up shit’s creek. Paying off a mortgage fast is a low-risk strategy because, even if the real estate market tanks, if you do not plan to use your house as an investment you can still live in it and not care. First, IANA economist, wealth manager, or anything like that. I’m a boring, low-risk, dollar-cost-averaging, dividend reinvesting investor with 30-year time horizons who puts his spare change in index funds every two weeks. I’d say the risk is minimal given the current fixed mortgage rates and the historical averages for the S&P500 or Dow in any 30-year period. [Here’s a 20-year chart.](http://allfinancialmatters.com/wp-content/uploads/2011/01/SP-500-20-Year-Rolling-Period-Returns-1926-2010.pdf) Since 1931, no 20-year period has returned less than the current mortgage rate. The 30-year charts should look even better, but I can’t find any.) But that’s up to the individual home buyer. Personally, I probably would spread the risk by making a 20% down payment, taking a 30-year mortgage, and then perhaps paying off an extra hundred bucks or so a month to chip away at the principle and build equity, while taking advantage of the mortgage tax deduction. In other words, treat it as any other investment. I don’t necessarily think this is the most financially rational thing to do, given all the data, but there is the psychological benefit of not having a large outstanding loan that is appealing. ---
**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 3, 2011, 5:51pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/52 "2011-03-03T17:51:00Z")
Of course, one of the things missing from the equation above is the appreciation of the home value. However, there is also the downside of the lack of liquidity. Lots of things to consider but, like I said above, a 30-year mortgage need not be a bad financial strategy. ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [March 3, 2011, 5:51pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/53 "2011-03-03T17:51:08Z")
> [@pulykamell](#): > > First, IANA economist, wealth manager, or anything like that. I’m a boring, low-risk, dollar-cost-averaging, dividend reinvesting investor with 30-year time horizons who puts his spare change in index funds every two weeks. I’d say the risk is minimal given the current fixed mortgage rates and the historical averages for the S&P500 or Dow in any 30-year period. [Here’s a 20-year chart.](http://allfinancialmatters.com/wp-content/uploads/2011/01/SP-500-20-Year-Rolling-Period-Returns-1926-2010.pdf) Since 1931, no 20-year period has returned less than the current mortgage rate. The 30-year charts should look even better, but I can’t find any.) But that’s up to the individual home buyer. Personally, I probably would spread the risk by making a 20% down payment, taking a 30-year mortgage, and then perhaps paying off an extra hundred bucks or so a month to chip away at the principle and build equity, while taking advantage of the mortgage tax deduction. In other words, treat it as any other investment. I don’t necessarily think this is the most financially rational thing to do, given all the data, but there is the psychological benefit of not having a large outstanding loan that is appealing. First, at least here in Canada (your jurisdiction may vary), it is unusual to get a long-term mortgage with a “fixed interest” where the interest is “fixed” beyond the 5-year mark, which leaves one vulnerable to the possibility of high interest rates on a 30-year mortgage. Certainly, interest rates are at a low now, but if they should go through a period of rapid increase, as they did in the '80s, one could find oneself in trouble. Second, I fully agree with taking advantage of any tax benefits. Alas, we do not enjoy the juicy mortgage interest deduction here! ☹ Third, my strategy is not so dissimilar - I divide my savings between topping up savings vehicles that maximize tax advantages (up here, Registered Retirement Savings Plans, in which you can put equities, among others) and making some extra-payments to get rid of the mortgage faster. Non-economic thinking plays its role I admit - being mortgage-free is something I look forward to, even if it is only a symbolic victory! 😃 I tend to purchase low-fee index-tracking mutual funds. ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [March 3, 2011, 5:53pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/54 "2011-03-03T17:53:23Z")
> [@pulykamell](#): > > Of course, one of the things missing from the equation above is the appreciation of the home value. However, there is also the downside of the lack of liquidity. Lots of things to consider but, like I said above, a 30-year mortgage need not be a bad financial strategy. I look on appreciation of home value and maintenance costs as a wash (at best). If it’s a windfall, all the better - but since I have no particular plans to move, it will not really benefit me. Unless I need to squeeze out some equity on retirement … ! ---
**Author:** ![kenobi\_65](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kenobi_65/32/13178_2.png) [@kenobi\_65](https://boards.straightdope.com/u/kenobi_65)\ **Post date:** [March 3, 2011, 5:56pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/55 "2011-03-03T17:56:03Z")
> [@Malthus](#): > > First, at least here in Canada (your jurisdiction may vary), it is unusual to get a long-term mortgage with a “fixed interest” where the interest is “fixed” beyond the 5-year mark, which leaves one vulnerable to the possibility of high interest rates on a 30-year mortgage. Fixed rates on long-term mortgages aren’t at all uncommon in the U.S. I’ve had two different 30-year fixed-rater mortgages, and I didn’t note anything unusual about them at the time they were initiated. They tend to have higher interest rates than variable-rate mortgages, of course. ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [March 3, 2011, 6:00pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/56 "2011-03-03T18:00:24Z")
> [@kenobi\_65](#): > > Fixed rates on long-term mortgages aren’t at all uncommon in the U.S. I’ve had two different 30-year fixed-rater mortgages, and I didn’t note anything unusual about them at the time they were initiated. They tend to have higher interest rates than variable-rate mortgages, of course. Fair enough; that certainly adds sense to the strategy, by removing the risk of a ballooning rate. If your equities portfolio can be guaranteed to outperform the 30 year mortgage at the higher rate, there is no downside. Which brings to mind - why would financial institutions invest in such an investment, if index funds are bound to do better? ---
**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 3, 2011, 6:01pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/57 "2011-03-03T18:01:33Z")
> [@Malthus](#): > > First, at least here in Canada (your jurisdiction may vary), it is unusual to get a long-term mortgage with a “fixed interest” where the interest is “fixed” beyond the 5-year mark, which leaves one vulnerable to the possibility of high interest rates on a 30-year mortgage. That sucks. Here we have fixed mortgages and ARMs (adjustable rate mortages). ARMs serve their purpose, and can be used prudently and rationally, but a lot of people screwed themselves with ARMs during the housing bubble. When I hear most Americans talk about a mortgage, it’s a fixed-rate mortgage, and the quoted 5% rate refers to the 30-year fixed. 15-year mortgages and ARMs have lower rates. (The 15-year is around 4.4%, and the 5/1 year ARM–fixed rate for five years, adjustable each year thereafter–is around 3.2%.) ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [March 3, 2011, 6:11pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/58 "2011-03-03T18:11:21Z")
> [@pulykamell](#): > > That sucks. Here we have fixed mortgages and ARMs (adjustable rate mortages). ARMs serve their purpose, and can be used prudently and rationally, but a lot of people screwed themselves with ARMs during the housing bubble. When I hear most Americans talk about a mortgage, it’s a fixed-rate mortgage, and the quoted 5% rate refers to the 30-year fixed. 15-year mortgages and ARMs have lower rates. (The 15-year is around 4.4%, and the 5/1 year ARM–fixed rate for five years, adjustable each year thereafter–is around 3.2%.) According to Wikipedia (I know, not reliable) in Canada one _can_ get a 10-year fixed, but in my experience, 5-year fixed is more usual. > [@](#): > > Fixed rate mortgages are the most classic form of loan for home and product purchasing in the United States. The most common terms are 15-year and 30-year mortgages, but shorter terms are available, and 40-year and 50-year mortgages are now available (common in areas with high priced housing, where even a 30-year term leaves the mortgage amount out of reach of the average family). > > Outside the United States, fixed-rate mortgages are less popular, and in some countries, true fixed-rate mortgages are not available except for shorter-term loans. For example, in Canada the longest term for which a mortgage rate can be fixed is typically no more than ten years, while mortgage maturities are commonly 25 years. I think the more important issue is that we lack the mortgage interest tax break, which really adds incentive. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [March 3, 2011, 7:03pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/59 "2011-03-03T19:03:56Z")
> [@Malthus](#): > > However, there are other factors at work - namely, risk. Most people’s goal is not simply to maximize the cash potential at the end of a certain period, but to do so with a certain acceptable minimum of risk. > > Taking on a huge mortgage at a low rate and investing in equities can be a risky strategy. If mortgage rates go up, or the stock market crashes - you could easily be up shit’s creek. Paying off a mortgage fast is a low-risk strategy because, even if the real estate market tanks, if you do not plan to use your house as an investment you can still live in it and not care. We paid off our mortgage several years ago. It was a low risk way to increase our cash flow and not pay interest. Last year we took out a 4% loan against our house. At this point we have enough assets that its low risk, and we are doing better than that in the stock market. The loan for is is only 15 years and we will pay it off in seven (the time my oldest starts college) - that got us the biggest delta between interest rate and anticipated yield. ---
**Author:** ![Motorgirl](https://avatars.discourse-cdn.com/v4/letter/m/e36b37/32.png) [@Motorgirl](https://boards.straightdope.com/u/Motorgirl)\ **Post date:** [March 3, 2011, 7:40pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/60 "2011-03-03T19:40:55Z")
> [@snailboy](#): > > [snip] If you buy a $200,000 house (a pretty nice house around here but the numbers scale) [snip] > [@Wheelz](#): > > 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.” To build on Wheelz’ post, the unimproved land value of the 5000 sq ft lot my house sits on is $180,000. And this is a good neighborhood but not full of mansions. Just rows of 2-family houses with units between 1000 and 2000 sq feet. Round here, you could maybe get a lot to build on for $200k, if you could actually find an empty lot. [Previous page](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227.md?page=2) [Next page](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227.md?page=4)