# 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:** 4
**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, 7:52pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/61 "2011-03-03T19:52:03Z")
> [@Motorgirl](#): > > 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. Gah! I did the measurements wrong. The lot is 3800 square feet, not 5000. Not a big difference, but I felt I should correct. ---
**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, 7:52pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/62 "2011-03-03T19:52:55Z")
> [@Motorgirl](#): > > 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. In Toronto, you could not find a _dog_-house for $180,000. 😉 The average detatched home price in the GTA is $473,000, but that really implies living far, far away from the city … an okay 3 bedroom home in a decent area is more in the order of $6-$700,000. If you are lucky. ---
**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, 8:01pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/63 "2011-03-03T20:01:13Z")
> [@Malthus](#): > > In Toronto, you could not find a _dog_-house for $180,000. 😉 The average detatched home price in the GTA is $473,000, but that really implies living far, far away from the city … an okay 3 bedroom home in a decent area is more in the order of $6-$700,000. If you are lucky. Same here. In my neighborhood we don’t do detached, it seems. Median price for a 3 bedroom condo hovers around $500k ---
**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, 8:06pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/64 "2011-03-03T20:06:53Z")
Meanwhile, in my neighborhood in Chicago (where I’ve lived most my life and where I grew up), a two-bedroom hovers at around $140K-$150K. If you want to head to an immediately adjacent southwest suburb that doesn’t have an urban crime rate, you’re still looking fine at $200K-$225K or so. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [March 3, 2011, 8:07pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/65 "2011-03-03T20:07:30Z")
> [@Malthus](#): > > Which brings to mind - why would financial institutions invest in such an investment, if index funds are bound to do better? Diversity. Financial institutions invest in anything that they think will make them money. ---
**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, 8:17pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/66 "2011-03-03T20:17:58Z")
> [@msmith537](#): > > Diversity. Financial institutions invest in anything that they think will make them money. I would’ve thought the fact that the loans are secured (that is, less risky than equities) plays some part. I simply cannot accept that long-term investments in stock market index funds are a such a risk-free excercise as all that. ---
**Author:** ![aruvqan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aruvqan/32/2891_2.png) [@aruvqan](https://boards.straightdope.com/u/aruvqan)\ **Post date:** [March 3, 2011, 11:38pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/67 "2011-03-03T23:38:18Z")
Well, we got a 30 year mortgage in 1990 that was pretty low, was geared towards 1 Navy income [as one can _never_ depend on a civilian job, but you really have to fuck up royal to get kicked out of the Navy if you are competent in your MOS] and we were told that he would be permanently stationed at SubBase nLon for the last 17 years of his enlistment [he could flip between sea duty and shore duty without needing to change duty stations.] We were _theoretically_ precleared for up to $250 000. My freaking ass, that would have made the monthly payments somewhere around $2k+ a month. We found a property for $91K that was appraised for $125K but the guy had bought 3 properties to flip and the market had that minicrash. We would have liked something closer to Groton, but closer to the shore we would have paid almost $100K more for less property. This is 3 acres, with an 800 sq foot house, and a 20x30 3 level ‘barn’ [shaped building that never saw an animal and wasn’t designed for animals.] We bought it because we had a bunch of crap in boxes and a 14 foot truck of furniture, and literally had 1 week to find a place to live. [The house we had rented got sold and the new owner was going to raise the rent to an amazing level. He obviously thought navy = unlimited money or something.] Upshot,we pay just under $1k, have theoretically 10 years left [if we hadn’t been paying extra. Would be paid off except for 2 3 year terms where I was laid off and unable to find work, and some serious medical expenses in the past 3 years that would have broken us if we had that $2+k mortgage payment going out.] And for some other couples that get married and buy a 4 bedroom house with a 30 year mortgage in a nice suburb with shopping, schools, parks and the whole shebang? Ever heard of having kids? You can’t keep them in a shoebox in a closet. Some people get married and plan families, and have the foresight to not go with that uber leet loft that they have to find a buyer for when they get pregnant and pop out twins…:rolleyes: It is called planning, can you say planning? ---
**Author:** ![snailboy](https://avatars.discourse-cdn.com/v4/letter/s/97f17d/32.png) [@snailboy](https://boards.straightdope.com/u/snailboy)\ **Post date:** [March 4, 2011, 1:22am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/68 "2011-03-04T01:22:32Z")
> [@aruvqan](#): > > And for some other couples that get married and buy a 4 bedroom house with a 30 year mortgage in a nice suburb with shopping, schools, parks and the whole shebang? > > Ever heard of having kids? You can’t keep them in a shoebox in a closet. Some people get married and plan families, and have the foresight to not go with that uber leet loft that they have to find a buyer for when they get pregnant and pop out twins…:rolleyes: It is called planning, can you say planning? Yeah, I can say planning, like planning to not have kids you can’t afford. ---
**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 4, 2011, 3:48am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/69 "2011-03-04T03:48:07Z")
> [@snailboy](#): > > Or do you mean it returns 10% per year when averaged over a 20-year period? yes ---
**Author:** ![corkboard](https://avatars.discourse-cdn.com/v4/letter/c/e9bcb4/32.png) [@corkboard](https://boards.straightdope.com/u/corkboard)\ **Post date:** [March 4, 2011, 1:48pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/70 "2011-03-04T13:48:54Z")
The OP might not have to worry about it much longer: [http://www.nytimes.com/2011/03/04/business/04housing.html?\_r=1&hp](http://www.nytimes.com/2011/03/04/business/04housing.html?_r=1&hp) (NYTimes article _Without Loan Giants, 30-Year Mortgage May Fade Away_) ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [March 4, 2011, 2:29pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/71 "2011-03-04T14:29:15Z")
> [@snailboy](#): > > Yeah, I can say planning, like planning to not have kids you can’t afford. Almost no one can afford kids. Yet many people have them, and manage to feed them, clothe them, and keep a roof over their heads. Sometimes it takes a 30 year mortgage to do it - at least out of the gate. But a 30 year mortgage can lower your cash flow during the expensive daycare/SAHM years - then when they get to school and your expenses drop, you can pay down your mortgage pretty fast. We did a 30 year for the daycare years - paid it off when the kids were in 2nd grade (seven years into owning the house). Logic being, that if either one of us got laid off, our obligated payment was low enough to pay it on one income - and we had $1600 a month in daycare. ---
**Author:** ![NicePete](https://avatars.discourse-cdn.com/v4/letter/n/ee7513/32.png) [@NicePete](https://boards.straightdope.com/u/NicePete)\ **Post date:** [March 4, 2011, 4:17pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/72 "2011-03-04T16:17:08Z")
Obviously the only sane thing to do is live in a van down by the river and invest the money you would have spent on a 15 year mortgage. ---
**Author:** ![Wallenstein](https://avatars.discourse-cdn.com/v4/letter/w/b5a626/32.png) [@Wallenstein](https://boards.straightdope.com/u/Wallenstein)\ **Post date:** [March 4, 2011, 4:19pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/73 "2011-03-04T16:19:01Z")
> [@Dangerosa](#): > > Almost no one can afford kids. Yet many people have them, and manage to feed them, clothe them, and keep a roof over their heads. Sometimes it takes a 30 year mortgage to do it - at least out of the gate. But a 30 year mortgage can lower your cash flow during the expensive daycare/SAHM years - then when they get to school and your expenses drop, you can pay down your mortgage pretty fast. > > We did a 30 year for the daycare years - paid it off when the kids were in 2nd grade (seven years into owning the house). Logic being, that if either one of us got laid off, our obligated payment was low enough to pay it on one income - and we had $1600 a month in daycare. This is exactly where we are. Low monthly payments until our cash flow improves, at which point we re-mortgage for a 15-10yr term and get it paid off fast. ---
**Author:** ![aruvqan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aruvqan/32/2891_2.png) [@aruvqan](https://boards.straightdope.com/u/aruvqan)\ **Post date:** [March 4, 2011, 7:14pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/74 "2011-03-04T19:14:05Z")
> [@snailboy](#): > > Yeah, I can say planning, like planning to not have kids you can’t afford. You know, some people have religious proscriptions against birth control … > [@Dangerosa](#): > > Almost no one can afford kids. Yet many people have them, and manage to feed them, clothe them, and keep a roof over their heads. Sometimes it takes a 30 year mortgage to do it - at least out of the gate. But a 30 year mortgage can lower your cash flow during the expensive daycare/SAHM years - then when they get to school and your expenses drop, you can pay down your mortgage pretty fast. > > We did a 30 year for the daycare years - paid it off when the kids were in 2nd grade (seven years into owning the house). Logic being, that if either one of us got laid off, our obligated payment was low enough to pay it on one income - and we had $1600 a month in daycare. I seem to remember back in the late 70s/early 80s seeing somewhere birth to 18, no major medical was on the order of $100 000 per kid. No idea what it would be now. And nobody has the perfect life - no matter how much you plan on the college until 22, new job at 23, perfect wedding at 24, first house at 26, first kid at 27, second kid at 29. Save for kids college for 18 and 20 years respectively, empty nest syndrome and downsize to the perfect condo at 50, grandkids coming along shortly, it probably isn’t going to happen. [and somewhere in there buy a perfect vacation house on the beach/lake/tropics/wherever] ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [March 4, 2011, 8:38pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/75 "2011-03-04T20:38:00Z")
> [@NicePete](#): > > Obviously the only sane thing to do is live in a van down by the river and invest the money you would have spent on a 15 year mortgage. I have a friend who did that. ---
**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 5, 2011, 3:41am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/76 "2011-03-05T03:41:05Z")
> [@Wallenstein](#): > > This is exactly where we are. Low monthly payments until our cash flow improves, at which point we re-mortgage for a 15-10yr term and get it paid off fast. Why? ---
**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\ **Post date:** [March 5, 2011, 5:00am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/77 "2011-03-05T05:00:48Z")
> [@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. What are you using as the measure of “the US stock market”? For example, the 20 years to 2009 returned 7% using the S&P 500 as the measure. ---
**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 5, 2011, 6:06am UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/78 "2011-03-05T06:06:25Z")
> [@amarone](#): > > What are you using as the measure of “the US stock market”? For example, the 20 years to 2009 returned 7% using the S&P 500 as the measure. The chart I linked to above shows 8.2% for that time frame. I don’t know whether or not that takes dividend reinvestment into account–that alone can add another 2-3% to your pocket. (Of course, minus the capital gains tax you have to pay on it.) ---
**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\ **Post date:** [March 5, 2011, 1:23pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/79 "2011-03-05T13:23:42Z")
> [@pulykamell](#): > > The chart I linked to above shows 8.2% for that time frame. I don’t know whether or not that takes dividend reinvestment into account–that alone can add another 2-3% to your pocket. (Of course, minus the capital gains tax you have to pay on it.) He is using the term “total return” which means that dividends should be included, which is also the normal way historical data is given. Anyway, it is misleading to compare risk-free interest rates on a mortgage with much riskier returns for stocks. It makes more sense to compare mortgage rates with CDs. Even treasury bonds are riskier than the mortgage rate. ---
**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\ **Post date:** [March 5, 2011, 1:43pm UTC](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227/80 "2011-03-05T13:43:26Z")
> [@amarone](#): > > He is using the term “total return” which means that dividends should be included, which is also the normal way historical data is given. > > Anyway, it is misleading to compare risk-free interest rates on a mortgage with much riskier returns for stocks. It makes more sense to compare mortgage rates with CDs. Even treasury bonds are riskier than the mortgage rate. I mean that year to year returns on treasury bonds are riskier. If you buy one and hold to term it is zero risk. [Previous page](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227.md?page=3) [Next page](https://boards.straightdope.com/t/why-would-anyone-get-a-30-year-loan-on-a-house/573227.md?page=5)