I think the point is long-term thinking. As you mentioned, over the life of a 30 year mortgage, I'm likely to have paid about double what I bought the house for. However, that's $900/mo today and that'll be $900/mo in 30 years. In 10 years, that'll be worth $675/mo, in 20 it'll be worth $495/mo and in 30 it'll be worth $270/mo. Meanwhile, the unit I was renting will probably be $1,500, $2,136, and $2,760.
So, I think even the expenses I've incurred (I replaced the power junction box and ugpraded it from 50amp to 200amp, installed several dedicated circuits, and did tons of other work to this place) will seem small in the long run, as will the interest included in my mortgage. Of course, I only have a 30yr mortgage as a failsafe. So that "if things go really bad, I only am obligated to a certain amount per month". Unless things go totally awry, I'm expecting to pay it off in half that time, which will be an enormous savings. (Also, payment on mortgage interest is tax deductible).
And best of all, in the end, I have a house and property to show for it. So even if it came out to be on par with renting for thirty years, I don't end up owning anything at the end of those three decades when I'm renting.
Of course, in the meantime, I'm keeping my fingers crossed that something doesn't arise that requires me to move and spoil the whole plan. That would suck. But the long term game will be beneficial. That's an admitted risk I have to take, since just about none of us can ever be absolutely sure that we'll still be where we are in five, ten, fifteen, or twenty years.
You can't compare apples with oranges, the rent on your old place is a different place, so you can't use those figures. You could be renting the home you're in now, that figure is the only figure you should be using in comparison.
You also don't seem to be taking into account that interest rates are very, very low at the moment, you definitely can't plan around those rates. Sometimes renting is cheaper than your mortgage payments, sometimes its more expensive. It depends on interest rates.
A lot of lenders also have heavy penalties for early payment. If you don't it probably means that the lender has given you an overall worse rate to compensate for the fact that you're probably going to pay early.
They always get their money. That's how banks work.
Buying a house has been a disaster for some people, causing some serious financial difficulty because they bought when they couldn't afford to, ending up with interest-only mortgages and are now in negative equity.
All because they believed that renting is throwing money away. I just wanted to clarify that it's definitely not.
I also want to point out that the tax-break you're currently getting is by no means guaranteed to remain for the lifetime of your mortgage. Governments use that to encourage home ownership. After the recent disaster it's only going to be a matter of time before someone starts questioning why this amazing tax break exists. Abolishing it is also a politically easier way to raise tax revenues without actually raising the tax rate, which allows politicians to say they stuck to their promise of not raising the tax rate. Here in the UK it was got rid of long ago. This also applies to any capital gains tax relief you think you'll be getting in the future.
Buying a house can be just as expensive, if not more and in fact carries far more risk as you can lose all your initial investment if you end up in negative equity or suddenly find yourself at flood risk due to rising sea levels or whatever it may be.
"You also don't seem to be taking into account that interest rates are very, very low at the moment, you definitely can't plan around those rates."
That's what 30-year fixed means: you can plan around those rates for the life of the mortgage.
"A lot of lenders also have heavy penalties for early payment. If you don't it probably means that the lender has given you an overall worse rate to compensate..."
I think that's fairly rare now. There are plenty of reasons that buying a house might be bad; but in this environment, bad loan terms are not one of them as long as you shop around.
"All you can lose renting is your deposit."
It's more complicated than that. Rising rents can be a risk, too, because you need to live somewhere. Also, there are costs (financial and otherwise) if you are forced to move by the landlord.
The interest rate risk on a house isn't just the mortgage payment. It's also the value of the house itself.
House prices tend to move inversely to interest rates. When interest rates are low, then new home buyers can afford a bigger principal values on a loan of a given monthly payment. The market adjusts to accomodate this, and house prices rise to take up that principal value. When interest rates fall, new home buyers can't afford to take out as big a mortgage, so the supply of cash available in the market declines, and prices fall accordingly.
In 2006, when interest rates were at historic lows and home prices were at historic highs, I worked out who was making the profit from all of this. Obviously, existing homeowners who sold into that market were making a killing; where was the money coming from? It wasn't coming from the people who bought the house: they were paying the same monthly payment, for the same loan terms, as people who bought in the not-so-bubble years before. It might've been coming from the banks, but ultimately their profits were indifferent too, because they were just passing along their low borrowing costs. Trace the money all the way back, and it was being injected directly into the economy by the Fed, through low discount rates. That reduced the banks' borrowing costs, which reduced their mortgage rates, which increased the size of the loan that could be written for a given monthly payment, which increased the amount of cash in the housing market, which made housing prices go up.
And then I wondered what would happen when this system went into reverse, interest rates started to rise, and cash came out of the system. This started to happen in 2007, but then the system froze up, the Fed panicked, and the floodgates opened again. It will probably happen again at some point in the future, unless we get full-on hyperinflation.
Anyway, the obvious losers are people who bought houses with inflated mortgages for inflated prices. With high interest rates, new home buyers can't afford as big a mortgage for the same monthly payment, so house prices must come down for anyone to be able to buy. But who are the winners? Not (really) banks, who're just passing along the borrowing costs from the deposits they have. It's actually people who are holding cash right now and looking to buy in the near future. They're acting as a mini-bank in their own right: if you can buy a house with cash (or put down an absurd down payment like 50+%), then you're effectively acting as your own bank, but without any borrowing costs. Any rise in interest rates goes straight to your pocket.
tl;dr: Falling interest rates are good for homeowners, ambivalent for mortgaged buyers, and bad for people with cash savings. Rising interest rates a bad for homeowners, ambivalent for mortgaged buyers, and good for people with cash savings.
> A lot of lenders also have heavy penalties for early payment.
I've had at least 5 mortages (in the US) and have never seen a prepayment penalty. That's not to say that they don't exist, but I'd like to see some evidence for "a lot of lenders". More specifics please.
So, I think even the expenses I've incurred (I replaced the power junction box and ugpraded it from 50amp to 200amp, installed several dedicated circuits, and did tons of other work to this place) will seem small in the long run, as will the interest included in my mortgage. Of course, I only have a 30yr mortgage as a failsafe. So that "if things go really bad, I only am obligated to a certain amount per month". Unless things go totally awry, I'm expecting to pay it off in half that time, which will be an enormous savings. (Also, payment on mortgage interest is tax deductible).
And best of all, in the end, I have a house and property to show for it. So even if it came out to be on par with renting for thirty years, I don't end up owning anything at the end of those three decades when I'm renting.
Of course, in the meantime, I'm keeping my fingers crossed that something doesn't arise that requires me to move and spoil the whole plan. That would suck. But the long term game will be beneficial. That's an admitted risk I have to take, since just about none of us can ever be absolutely sure that we'll still be where we are in five, ten, fifteen, or twenty years.