Cad said:
Sure, building equity is great, and as soon as it is feasible, I"d buy in order to do that and not throw money away on rent. In order to be financially independent though, you need to be able to not have to rely on your job income to survive - if your house payment is costing you 33-50% of your net income (count property tax, homeowners insurance, and utilities you"ll have to pay that you don"t pay when renting along with that) and you"re not expecting any large jumps in your income anytime soon, then you"ll be stuck paying that loan off over the life of the loan. Check out how much interest you end up paying doing it that way, it offsets any equity you"ll build. On a normal $200k house, you could buy the house, pay it off in 5 years, and then buy a lamborghini to go along with it.... or you could pay the house off in 20 years and pay interest. Which is smarter?
Find a house that is somewhat below your means (whatever that is) and get it paid off, then you can do the same for a bigger house, and stepping-stone your way into the lifestyle you want. You just can"t have it right now, and be financially responsible at the same time.
this is a completely silly argument and view of how mortgages and lending work.
on top of the obvious fact that you will live in a crappier place than you can reasonably afford, all you are saying is: pay your mortgage fast and early and you wont pay interest.
using your logic why not take it to the extreme and to pay the entire balance cash right up front, that way you wouldn"t have to pay any interest at all..
paying your mortgage down can be a good idea in certain circumstances (like when you have adjustable rates and want to lower the principal), but you are completely missing the point that LEVERAGE allows people to accrue value without having the money present. In most cases of non speculative real estate investment, property is a pretty crappy place to keep your money, especially in your own house when compared to other investment vehicles.
by paying down your mortgage in 5 years you are massively deleveraging your investment.
your aversion to debt in general is an odd viewpoint and perhaps a result of the recent financial crisis.
its really finance 101
sometimes debt can be good, for example when the stock market is in a bull run.
by borrowing from the bank at 5% to pay for your house, you can earn 10% on the stock market by investing what you would have put into paying down the mortgage. if you are aggressively paying down your mortgage, you are suffering the opportunity cost of missing what you could have earned investing it elsewhere. the same logic applies to renting vs. buying.
advocating being financial responsible and buying something within your means is always wise, and on that point i agree with you.
however, saying debt is bad and you should never be in debt is simply bad finance. in the same sense that credit cards are debt, as long as you pay them off every month i consider it to be a 30 day interest free loan.
