Buying a Home is not an Investment

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These two lines are gold, “A little patience and understanding could save you over one million dollars during your lifetime. Are you willing to do that to be able to spend an extra million in your life on things you think are out of your reach?”

People always talk about compounding interest and how it can help you throughout life. Same thing applies in reverse when you buy a home, the compounding interest year after year after year adds up really fast to making that house quite a bit more expensive than you think it is.

I believe it also ties your money up for a LONG time. Do you really want your money tied up in something like that for the next 30 years?

5% interest rate with $1200 monthly payment ($220k mortgage) totals $10,900 of interest paid in the first year. Of course it goes now but not quickly. With $50k income and 25% tax bracket that is tax savings of about $2,700. HOAs are only paid on condos. Without the HOA and bigger tax savings the difference in payments between renting and owning for 1 year is $2,300. Appreciation is the factor that can put owning ahead. Historically real estate has appreciated at about 3% a year so that is an additional $6,600 in equity on your $220k house. Now owning looks better by about $4,321. The appreciation is obviously not guaranteed, as we have seen in the past few years, but it can also end up being far higher than 3%. Just considering the current housing market and record low interest rates it is hard to see why renting is the better option, especially if you aren't going to move within 5 yrs.

I disagree. Mostly because I think you're leaving out key elements in the equation. You've talked about how a home could appreciate 3% a year. What about the money that you've saved (The $2,300 extra per year)? What if you invested that in good growth stock mutual funds with at least a good 10 year track record?

By the way, in the example above, I also believe you could take out parking at the apartment building.

Not to mention the emotional and psychological stress of having to pay a mortgage every single month. Also, what happens when you take the risk of having a mortgage into account?

Shouldn't the real case here be, don't buy a home you can't afford? I make no claim of being a financial expert, I do know, however, that I will not make money forever. When I retire I would like to own a home. You say you'd like the “peace of mind” of not owing a payment every month. What about the peace of mind that a 65 year old has when he knows that he owns the home he lives in, and as a consequence his fixed income will suffice for his needs. I understand that the counter argument is “well think of all that additional money you could have saved over the course of your life”…problem is, what else are we “really seeking in life?” A place to live is one of the most fundamental of human needs and it is a process that many have abused over the past 20 years. Their mistakes, and mistakes of the financial sector in general, however, do not justify calling any mortgage under any circumstances a mistake.

Also, I love the irony that the article is running alongside a banner ad for Amerisave Mortgage rates….

I can only tell you of our experience, realizing that this is a different day and time. In 1964, we bought our first house for $80,000. We stayed in it 10 yrs and sold it for a profit (I'm not sure what.) We moved because of jobs and bought a house for $135,000 in 1974. We paid the house off in 2002, I think. In 2004 we sold for over $500,000 and moved to Utah. After buying a house for $180,000 cash we put the rest in investments to supplement our retirement. Until we paid off the house we had a nice tax break from the interest and still have tax breaks from the taxes. Just our experience. If you are very mobile probably ownership is not for you.

LOL I totally agree about the irony, it's always been funny to us about the ads that google sends through based on our content. I guess there aren't many ads for things that we say….

Thanks for your great financial example. I do however have some additional questions. 1) What type of mortgage are we talking about? because if we are talking about a compounding interest mortgage, are we taking into account that you'll actually owe more money on the house after one year than you bought it for? Does the appreciation make up for that? Also, HOA isn't a big thing here for houses, but that is not a condo only thing. In Southern California it is common place with gated communities, or basically any community. I know a family that had a 700 dollar a month HOA for their house. Granted it was to live on a man made lake, but still that's my rent each month. My point with all of this also is that it isn't really an investment for investment sake. I mean I know you can do the IRR and all kinds of other things Fritz, so what's your rate of return on your money “invested” in your house? I'm just saying that it's a very risky deal and people should be more aware of what they are doing when buying a home. It's more complicated than we think.

Hma Alvord, I again understand that there are plenty of these situations. There are many people that could be in the same wonderful position you find yourself in, but the key to your success is that you did one very important thing, you were smart when you sold your house for 500,000 and didn't extend yourself even further or try to do something else with the money. You took money out of the appreciation and that is a wonderful thing. The only thing I wonder is in the end, taking into account inflation, interest, and opportunity cost, did you do the very best thing with your money that is possible? You might have, but I don't know if I can believe that it will work that well for everyone. Especially given the last 5 years in the housing market. Again, I stress the fact that there is more to this than meets the eye.

[...] Buying a Home is not an Investment | Young and Prosperous [...]

I think that we can say that there are smarter mortgages than others. People can save themselves a lot of money just by getting a fixed rate mortgage instead of a compounding kill me in interest mortgage. I mean the mortgage industry in and of itself has evolved into the craziness we see today.

I also do agree that owning a home, or shelter as commonly put, is one of the very basic needs of humans. I also agree that not having a payment and owning the place you live should be a goal of everyone, but do you need to start that dream at 25? Can't you wait 10 years to save yourself 100,000?

Again, my purpose is to call to question the common place arguments made in life about what we should and shouldn't do with our money and the way we live. Are we doing the very best? I don't really think that many of us are, I'm not even doing the best, I just want to try and find the best way possible and not let customs dictate how I live my life.

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You are right. You can definitely invest that $2,300 in a mutual fund or stocks that could appreciate faster than your house. For all but a few periods in time however, those mutual funds and stocks are far more risky than real estate. Nevertheless, if you are certain you can get a 10% return on your $2,300 and you don't mind “the emotional and psychological stress” that goes with watching the stock market then definitely keep renting.

That interest is on a 30 fixed loan. No, you will not owe more money on the house the year after you buy it because you are still paying down some principal. I agree that people shouldn't view a house as an investment but some people to buy the right property at the right time it can work out that way. My mom bought the house I grew up in for $130,000 in 1980 and sold it in 2005 for $510,000. Although it wasn't the ideal thing to do she kept taking home equity loans to pay for expenses she couldn't afford and she was still able to buy a condo in cash after she sold it. Now she has about $250k of equity in the condo that she could tap into with a reverse mortgage or home equity loan if she needs it when she retires. If she had continued to rent in 1980 she would have nothing to show for it and I highly doubt she would have been investing the extra money saved by renting in equities. Some people have the discipline and knowledge to do it but those aren't average people.

I think there is more that meets the eye as well. Comparing what you could've saved or bought in the same time frame in the market with good index funds (meaning low risk, steady returns).

There are always exceptions to everything though. I'm glad that it has been great for you!

This is the thing I don't like. A house should not be a forced savings plan. I think the biggest thing that bugs me is that that's how people treat it.

You're right in the sense that most people don't have the “discipline and knowledge to do it,” but I believe that's the very thing Gareth is trying to challenge in this article. We want to change that.

Yeah, I think I'm just about to chop the Google ads that are running on the site, especially considering what we write about!

Here's the thing… I may come out and say all mortgages are bad, but really, I'm just saying that the majority of times, mortgages don't work out 100% the way you plan. There will be unintended and unexpected expenses (whether money, time, emotional, etc.) that creep up. I really do believe that a lot of it can be avoided or at least lessened if we wait a bit to buy a home until we are more knowledgeable about what we really NEED rather what we feel like we WANT.

Consider the peace of mind of that 65 year old you talk about, and then consider the peace of mind that a young father has when he has a paid for house for his family at age 35 instead of 65? Don't you think that's worth at least thinking about?

How about buying a four-plex? You live in one unit and rent out the other three. If the money you get from the renters is more than the mortgage, how is that not a smart option?

I personally don't think that's a smart option unless you're paying for it in near cash.

What happens when one of the renters does not pay? Or you have to go through court to evict somebody? Or they trash your place?

There's enough risk in buying your own home with you controlling what happens to your home from the tenants (yourself).

I do think Real Estate is a good investment… but it should be take on when you can afford the investment, not when you have to borrow money to “invest.”

I can definitely see why that's considered more of an investment, but to be honest that is more of a business than investing. It comes with all the same risk, stress, problems, and time that it takes to run a business that has huge amounts of debt. And if I were looking at it from a business stand point, it doesn't make sense and here's why

See, I have to disagree with you on this one unless you are living in your parents basement for free. Payments are going somewhere, its just your choice if you would like those payments to turn into something of your own one day. Does that mean we should go out and buy a huge house that we cannot afford….no, but if we can get a home for close to the same price as an apartment and pay it down quickly, it is an investment. Even if you take out appreciation from the picture, you are acquiring an asset that will be yours at the end of the payments. Run a business from said home and welcome in tax benefits to boot. In book, it is an investment.

I think the only issue with what you've said is pay it down quickly…that's the point we are trying to make, just dealing with the normal “this is what we do because that's what everyone else does” does not make sense. See you're thinking a little better, but how many people have a business they can run out of their home? Also appreciation isn't guaranteed. And how many people can pay down their mortgage “quickly” ie not in 30 years. Then you also have to have the discipline to not take out a home equity loan once you do have it paid down to put yourself in debt again. Our purpose here is just to get people to think about what they're doing and learn better ways to do things. I will agree that if you can run a business out of your home then it helps, but if you buy a home on a fixed rate mortgage at 5% and you pay it normal and say it was 250k for the house, you'll pay almost 233k in interest over 30 years. I hope that you're home does become worth 483k + inflation over the 30 years. Again just trying to get people to think outside the box

I think part of the appeal of owning your own home as apposed to investing is that investments are all theoretical until you cash them out. Meaning that the money you get from investing isn't actual money until you sell the stocks or bonds or whatever it is you invested in. Take my parents for example: When we moved to Utah they purchased the cheapest house they could live with so that they could have a 15 year mortgage. They have also been investing and saving for retirement. Now they are just two years away from paying off their house however their investments have taken a big hit because of the market crash. I guess the point I'm trying to make is that while they have lost a lot of money that they invested for retirement, once they pay off their house it is theirs. It's something physical that they will always have barring some large disaster. Even if it wasn't the best investment for them that feeling of security is definitely worth something.

You get the same tax benefits from having an office in a rental as you do from a mortgage.

That's true. I definitely understand the security benefits. I never said that you shouldn't ever buy a house. In fact I think everyone needs to get to the point where they own a house free and clear. What I am saying is find the best way possible. Take your parents for example,
Why invest and save for retirement when you have debt?
Wouldn't it have been better to put that money towards the house that had debt on it first so they could have saved thousands in interest?
After they had it paid off then they would have had more money to put towards retirement. For example a 15 year mortgage at 6% fixed rate for a 180,000 dollar loan would cost about 93k in interest over the 15 years. If they pay it off in 7.5 years they would save themselves about 30k of that interest. 30k is a lot of money extra to have just by getting rid of the debt first.

My point is, buying a house has all kinds of other benefits besides monetary, but that doesn't mean we need to waste our money in the attempt to gain all those benefits.

I agree with what you've written Gareth. People always ask me, “Why haven't you bought a house since you can afford it?”

You did a real good job of pointing out most of the reasons. I also love the fact that most of my friends are currently what they call “house poor” whereas I feel I have way more margin to do fun things. I take so many trips and do so much fun stuff and my friends are always asking how its possible… easy, I rent. So one reason for me is I feel I have a much higher quality of life than a lot of people because of my flexibility in my finances.

I also love not being locked into one location. I can just up and go anywhere I want and not have to deal with having to sell my place. I think buying a home can be a great idea but most people in their early years of marriage I feel just rush it and try and accumulate everything their parents have and find themselves stuck with this big mortgage and lots of “stuff” but not much in their bank account.

I love that I am able to rack up savings, have room to invest and spend money on trips and still have room to do fun stuff. I feel I wouldn't nearly be able to do all those things as well as I currently am if I had a mortgage over my head.

Long story short, you can have you house that “you own” and I'll take my spot on the beach.

I think if you have the money to buy a house cash, then it can be an amazing investment. My parents have payed cash for every home they're ever owned, and they've made money on every home they've owned as well. A home mortgage is not evil, it's just not a great idea if you're looking to make money.

So you're saying just because the bank will give me a mortgage doesn't mean I can afford it?

You're ignoring the time-value of money, equity capital, and the larger picture by focusing only upon the first year. Rent is often tied to inflation – as the years go by, the amount rent costs goes up for an equal place. In year 1, the cost of the house, by your numbers, is a lot more (I will not comment if they are an accurate reflection of like-dwelling, because in my experience they are not) than year 5, 10, 15, 20, 25, or 30. As time goes on, the rent will increase to match inflation. At the same time, the value of each dollar spent per month on the house will go down, while the total amount spent stays relatively stagnant (more on the balance of property tax in a second). Based on historic trends, the dollar will be worth half its current value in 30 years. If rent tracks inflation (and it generally does), you'd be spending twice the current numerical amount on rent in 30 years than you would on a mortgage.

The general response to this is: yeah, but the total amount you pay on the house will go up as property tax increases. Two things: property tax will only increase if the value of your house goes up, which means selling your house would have a net-gain. Second, rent you've spent goes into the landlord's pocket – after that money is spent, there is no further return, no permanent durable good that you hold.

This brings us to equity capital – the amount of recoverable money you have in a resellable asset. Assuming the value of the house does not numerically increase, the value may either stay the same or decrease. Except in the most dire circumstances, the likelihood is still good that purchasing is better than renting. Consider: after 12 months of living in a place, using your numbers, you've spent $6,600 more for the house (again, not commenting on the actual accuracy of these numbers). However, you now have $14,400 that you have paid into the mortgage which is recoverable even if the house sells for the exact same numerical amount you purchased it. This is value you still have that would otherwise be gone with a rental. Even if you were to invest the $6,600 “saved” and get an average return of 8% per dollar (which is a *great* average per-dollar yearly return in the best of times), the house would need to depreciate by $7,272, or more than 50%, before renting makes sense.

This equation becomes even more pronounced as time goes on. Using an inflation calculator with a base year of 1980 (to give me 30 years to work with), in approximately 10 years, the cost of rent will be greater than the mortgage. At the end of 30 years, the cost of rent is more than twice that of mortgage + other stuff. That's when we get into the really interesting numbers – the marginal cost of living. After the mortgage is paid off, one only has the upkeep costs for a house. A perennial renter still has to pay rent, 30 years of inflation later. The marginal cost of living drops the cost of the house to a fraction of the total cost of renting. On top of all of this, a renter cannot say “I'm ready to retire”, sell their house, and live off the proceeds while seeing the world – they've not built that equity. Nor can they, during their lifetime, use the house as collateral to secure a loan for another venture. They are ultimately more limited in all choices.

Not to say purchasing a house is without risk – far from it. As with all investments, a down market coupled with personal hardship (losing a job, medical bills, etc), can sour a housing purchase and burn the one who took that step. However, no investment is without risk, and to say that “anyone who says owning a home with a mortgage is better than renting doesn’t know how to do math” is both mean-spirited and short-sighted. If you want an interesting article, consider the proposition of investing additional money into paying off the mortgage versus investing it. Consider psychology, security, etc… That would certainly be better than the assertions stated here.

…Also, I can't build a bar in the basement of a rented apartment …

Ah Tim, I've missed getting my butt handed to me in debates with you, brings back old high school memories. LOL

Although your argument is sound, I'd just like to point out that I never said one should never buy a house. I also understand that not everyone will ever be able to pay cash for a house, especially if they've put themselves in a tough spot already. I do think it's possible though. I also would like to just point out that the point of this post was to point out that there is more to buying a home than the simple monthly payment. I think that your asking of us to consider investing additional money into paying off the mortgage versus investing it is exactly one of the things we are getting at.

Also, my comment on not knowing how to do math is that people hardly ever do all the math. I cannot agree with the blanket term that owning a home is always better than renting. I think owning a home is critical, but it should be a planned purchased and done with an attitude of making it right. Living within your means, budgeting, and getting out of any debt you have on the place as soon as possible. Also that you choose a loan that makes sense and not do something crazy like an ARM mortgage. I mean if you're going to do it, do it right so that you minimize risk and don't waste money. Again just my two cents.

First off, HOA fees are going to cover trash fees most of the time. the HOA fees are also very easy to avoid, don't buy in an community that has them, so they aren't really fair to consider. that said, it should be fairly obvious that a house is going to be more expensive than renting in the short term, but in the long run, owning has its own benefits, and ignoring the long run is unfair if you are talking about an investment. if you want to settle in to a location for a long time, owning a house will give you the equity in the house that the rent never can.

My wife and I are looking for a house, i would not say that we are looking to invest our money, but we want the benefits of being in our own house. when we looked at our finances, and determined we had the money to make those extra expenses, we decided to start looking. the yard work is a funny argument. I love spending time in the yard, and it drives me crazy not being able to do that where we rent. the yard here is not kept well at all.

as long as we are talking about investments, what about a car? I bought a car for work. I drive around frequently for work, though most of my time is in the office. I would consider my car a terrible investment, even though it provides me work. it cost money to operate and maintain, and loses its value way more than a house ever would. the time it saves me, and the money it makes me can easily be offset by getting a different job that doesn't require me to have a car. that said, i like having a car, i like the benefits that came with owning a car.

overall, I agree, a house shouldn't be viewed as an investment, but that shouldn't be an argument for not owning a house.

All points well taken. Again, we aren't saying people should never buy homes, but just to make sure they do it in the smartest way possible. Buying a home is probably the most expensive thing that most people will ever purchase, you might as well do it the smartest way you can right?

Yes, we aren't talking about never owning a house. A house can be a blessing if bought at the right time. Do we really think through if we need a house when we first buy one? Make it a blessing, not a burden.

Point by point:
“I never said one should never buy a house.” Correct, but you did say “Buying a home with a mortgage is not an investment. It’s an expense. ” This is not strictly true, as I demonstrated numerically. Rather than being a straight expense, it's an expense with investment aspects, and in many cases it makes more sense than straight renting. It's when the market is fueled by speculation and “I'll finance something I can't afford now, knowing I can refinance with something I can afford in five years” that renting is a better choice.

“I do think it's possible though.” Perhaps, but much of that depends on the area you're looking to live, and you have to account for the opportunity cost of renting that period of time. A person who has paid a mortgage for 10 years may be better off (in general, *will* be better off) than one who has rented for that period of time. It depends on housing and rent price appreciation, as well as other factors, but isn't that always the case?

“there is more to buying a home than the simple monthly payment.” There's also more to renting than a simple monthly payment. Moving is generally not a trivial cost, and money spent on rent is non-recoverable. Not only do you miss out on tax benefits, but any money spent on rent is truly an expense. Contrary to your initial position that a mortgage is an expense, not an investment… a mortgage towards ownership is infinitely more of an investment than rent.

“I cannot agree with the blanket term that owning a home is always better than renting.” Indeed, and I've outlined where it doesn't make sense. However, your conclusion states that “I have a hard time buying into the whole 'American Dream' when it costs me so much money and doesn’t make sense financially.” In neglecting to account for the long term, you've missed the mark of financial sense and traipsed off into the land of idle speculation. Specifically, by discounting the recoverable aspect of finances spent into housing, you miss that it's not all a sunk cost, where rent *always* is a sunk cost.

“Living within your means, budgeting, and getting out of any debt you have on the place as soon as possible. ” I disagree most strongly with this. A mortgage, similar to student loan debt, is (currently) some of the cheapest money you will ever have invested you. When mortgage rates were on the order of 10-20%, then yes, it made sense to get out from under the debt as soon as possible – growing an investment at that rate would be nearly impossible, so every dollar paid off early was as good as that much made. However, take my case for example – I'm in a 30 year fixed loan at 4.75%. Dollar for dollar, it makes more sense to invest marginal funds into something else. If risk averse, a 10 year A or AA (or 20 year AAA) corporate bond is returning between 5 and 6.5%. Every dollar invested into such a vehicle returns between .25-1.75% more per year than the same amount spent on the mortgage. Couple this with the fact that the tax break is based entirely on the amount of money spent on the mortgage interest (not principal), and you can see that paying off a mortgage early does not always make sense. In fact, many other vehicles provide better growth prospects, and by investing in those, you keep more funds tappable in the event of a housing meltdown or a personal economic crisis.

If you'd like to talk specific numbers, give me an IM or an email and I'll go over the amortization schedule, benefits of paying off principal in a period of time, etc. I've run all the numbers, and unless Katt and I both get laid off in the next year or two (and are unable to find another job), this is by far the best move. For us, it essentially makes sense to save additional money in another vehicle, pay down the principal in one lump sum in 5 years (in order to remove FHA MIP), and then continue to save… At the point where our savings = the remaining principal, we can choose whether to continue paying mortgage, or if we'd like to just eliminate that from our lives.

“Also that you choose a loan that makes sense and not do something crazy like an ARM mortgage.” Again, it depends. If in historically low APRs, an ARM makes no sense. However, if in a period of high APR mortgages, an ARM can be a better choice (also, ARM mortgage = adjustable rate mortgage mortgage ). In the past 5-10 years, though, yes, an ARM was generally a risky move.

“Again just my two cents. ” And they're appreciated. Here's your 98 cents change

In your situation I actually agree with you, but than again even with the low interest rates out there, not many people are at below 5% interest rates due to their credit, income and expenses. Also, not everyone is in your position with a dual income no kids making over 160k a year (from what I remember, possibly more now). For you it does make good sense because I'd imagine that you already do have a good amount of money that you can actually put towards savings. Also, the market in Washington is completely different than say here in Utah where rent in most cases is much cheaper than any mortgage you can find. Like we've said are attempt was to just call everything into question about home buying because people don't understand everything the way you do. If everyone made the same math calculation as you did, evaluated everything and were capable of doing everything you know how to do, then I might have a different opinion. However, given the current state of affairs in the real estate market I think we can all learn some ways to improve things.

I do appreciate your comments Tim and thanks for my 98 cents in change

“I've run all the numbers, and unless Katt and I both get laid off in the next year or two (and are unable to find another job), this is by far the best move.”

Tim, I don't know you, but you've got your head on straight from what I can tell – really trying to analyze things and take everything into account. However, in all of your comments, it's straight math. I don't know of a good way to measure risk, but you're not taking into account any risk at all.

In today's job market, the case you suggested could happen. Maybe not 40 years ago when you people rarely got laid off, but today, people change jobs (voluntarily and involuntarily) fairly rapidly.

I'm not saying I have a way to insert risk into your math projections, but isn't there something to be said of risk? Lets put it a different way: If you had a paid for house, would you really borrow (HELOC) money on your house to make .25-1.75%? Would you put yourself in that kind of danger?

What's the difference?

“not many people are at below 5% interest rates due to their credit, income and expenses”
On the contrary, http://www.bankrate.com/ is showing the *average* 30 year fixed mortgage is 4.59% right now. If the mortgage rate is normally distributed for those who would likely be reading your blog (I’d hazard a guess it is), that means that the majority certainly are getting below 5%, significantly below.

“Also, not everyone is in your position with a dual income no kids making over 160k a year.” Perhaps, but we’re also living in an area that, unlike Utah, has expensive housing . Since it’s all publicly searchable records anyway, you can look in our area at home prices (and even see what we paid): http://www.redfin.com/WA/Sammamish/22002-SE-35th-St-98075/home/436465
Even at that price we qualified for FHA financing, because prices around here are like that, even after the big drops.

“Like we’ve said are attempt was to just call everything into question about home buying because people don’t understand everything the way you do.” True, best they speak to a financial advisor or spend a lot of time learning about amortized mortgage, closing costs, selling costs, opportunity cost, budget considerations, etc. We looked at what we had and decided that, though it would be *really* tight if it happened, we could afford this place on one of our incomes.

“However, given the current state of affairs in the real estate market I think we can all learn some ways to improve things.” I think a better lesson is “do the cost analysis”, rather than to throw out a number “million dollars during your lifetime” as a justification for or against something.

“If you had a paid for house, would you really borrow (HELOC) money on your house to make .25-1.75%? Would you put yourself in that kind of danger?” It depends, but you're missing something. Specifically, taking a HELOC is not a comparable situation to rent v. mortgage, nor is it comparable to paying off the mortgage v. investing in a parallel asset. I'll elaborate in two parts:

First, in comparing rent v. mortgage, you have to remember the earlier numbers regarding the home value loss for rent to be cheaper. If rent is $900/month, that means every year of rent is $10,800 of a lost expense. In the first year of a mortgage that costs 30% more per month ($1,170, approximately $225,000 loan at 4.75% fixed for 30 years), the house has had approximately $3,470 of its principal paid, plus down payment. At three years, approximately $11,000 has been paid into principal. An additional $8,770 has been deducted from taxes. If you were to sell the house at this point for the exact same amount you purchased it ($233,160 for a 3.5% down loan for the above numbers), and your original closing costs were $4,000, plus you were paying 5% agent fees ($11,658), the house would still come out ahead by $14,841 over the rental.

That is, selling price + tax benefit gained over the term of the loan – principal remaining on loan – original closing costs – agent fees = amount that you pocketed from the sale of the home. That is, 233160 + 8770 – (225000 – 10929) – 4000 – 11658 = 12201. Take out the down payment ($8,160) from $12,201 to get a net return of $4041 from the sale of the home. Add in the amount you didn't spend on rent (since you would be negative that money in your accounts if you had rented) to get the difference between rent and cost of the home, and you get 4041 + 10800 = $14,841. That's in three years time alone, with no increase in the cost of rent nor the value of the home. In order for your home to cost you the same amount rent did, it would need to depreciate $14,841 in three years, or approximately 6.3%. This can happen if you purchase and sell in a downward sliding market, certainly, but that's in the worst case scenario I could realistically give myself for the house. On a longer timescale, the situation becomes even more dire for the rental, as the amount of sunk costs there slide even farther towards housing, and the chance of massive decrease in home value relative to purchase price goes down.

Second, in comparing paying mortgage early versus investing in a parallel asset, you miss a significant issue in only addressing the .25-1.75% return. That is, if you were to pay off you house early, the money is locked into the sale price you are able to obtain on your house. In the worst case scenarios, the value of the house has dropped, and you cannot recover what you've put into the house. By putting your marginal funds into a separate vehicle that has “guaranteed” returns (grade A or greater bond ratings, i.e. fixed income investments), you have created an inherent hedge against decreasing home values. Should you need to default on your mortgage, you have an asset that you can leverage for cash. You get a two-part benefit: you're making more than your mortgage costs you in interest, and you're not putting all of your eggs into one basket. That's a smart move compared to taking a HELOC for a chance at .25%-1.75% return, which is just iffy.

Take it from someone who actually has a mortgage. Paying for a house vs. an apartment isn't “more stressful” it's awesome! Renting has it's downsides: contracts (which sometimes are broken leading to moving early), changing apartments constantly, rent increasing, not having control over your property, and stress of paying rent (no different then stress of paying for a mortgage). I love my house and therefore I love paying for it.

When you take into account what you can actually afford vs. what you qualify for and make a smart decision, buying a home is one of the most rewarding experiences. If I was to do it over again, the only thing I would change is to have paid off all of our credit cards first. That's what makes us “house poor,” not our house payment.

For us, it would have taken us 40 years to have saved enough cash to buy our home. That's taking into account only saving the difference between our previous rent and our current house payment, which is all we could've afforded to save at the time. We now have a low fixed rate 30 year mortgage, and if we make one extra payment a year, we'll pay it off in 21 years. I'd rather live in my house for the next 21 years then live in a poopy apartment for 40 years while saving for it.

[...] Mortgages still do bind you to your house and to a certain expense that you can’t get out of. No matter what you tell me, I will always think of a house as an expense. Of course a “home” adds lots of other benefits, but a house or roof over your head is a life expense. With that in mind, all a mortgage does is define how much that expense is for a certain period of time and makes it so you can’t get rid of that expense without a lot of effort. It binds you. [...]