Here’s my problem with this. For most people, unless you live with your parents or bum on a friend’s couch, you’re gonna need a place to live. And you essentially have just 2 options: Rent a place or buy one. To me, this argument should be couched in terms similar to those comparing leasing a car vs buying a car via loan. And just like it’s almost always better to buy the car, it’s almost always better to buy the house, because after the lease ends you’re left with nothing, whereas when you buy on loan, when the loan is paid off, you own it in full. It doesn’t matter if the house loses value over that time, you still have something that can be sold for some amount.

Let’s say, for example, you buy a $200,000 house with $10,000 down at 4% for 30 years. Your monthly payments would be $907 per month. At the end of 30 years you will have paid $326,552 on the mortgage. Total house price after 30 years: $336,552. Now lets see your house loses half it’s value. If you sell your house now, you’d essentially have lost $236,552 (plus closing costs and house maintenance and such) if you look at it as an investment. However, if you compare it with the cost of renting the same house, even if you found rent for as low as the mortgage (and usually rent is more than the mortgage. For example in my area, a 3 bed apartment runs between 1000-1500/month whereas a similar house or condo mortgage would only be 400-800/month), you would’ve spent $326,552 on rent, but you wouldn’t be able to sell your house at the end to recoup any of that. So unless your house drops down to being absolutely worthless, it’s still going to be better than renting.

I can see where you come from on this.

I don’t think most people, myself included, can save and buy a property outright. You can and will, and my grandfather did. That being said, mortgages offer an opportunity, at the cost of interest. IN the meantime, however, I am paying for somewhere to live (though now I’m a landlord, someone else is paying me etc etc). I do pour money into the offset to offset the mortgage, and you’re right, the bank could take my house if I missed a payment. Which would be in about two years time, as there’s enough in the offset to cover a year or two of monthly payments, which are automated. My thoughts are that if I lost my job, and couldn’t pay the mortgage, I would sell in those two years. Perhaps at a loss, sure, but given in Australia, it’s common to buy with 20% down, one makes the (perhaps false assumption) that you could sell for 80% of the original sale price, to satisfy the mortgage owing on the bank, and be back to square zero. All based on assumptions, agreed.

I don’t invest more than about $10k. Why? Cause I don’t understand it enough – and whilst you helpfully write posts, they are Canadian or the US focused, and the options/brands etc, are known and therefore I don’t immediately understand. It’s a cop out, I could read more and know more.

I agree with you on all points. It’s just not a form of savings. I also go one further and don’t really think of it as an investment, unless it’s generating funds for me right now in the form of rental income.

Yes, in 10, 20, 30 years a house may have appreciated in value, and my initial investment would have grown, but I don’t really want to count on that because so much can happen (it burns down, we need to sell and it’s underwater, etc.). I want a house so I can put a roof over my family’s head, and if it goes up in value, that’s gravy.

I don’t consider mortgage repayment “savings” per se. To me “savings” is defined as parking cash aside in a safe, liquid place- which I’m not doing when paying for a mortgage. However, my mortgage repayments are investments; the amount towards my principal increases my assets. Whether or not it’s the smartest form of investment is debatable and circumstance dependent, but similar to purchasing of fund and stocks, it’s subject to market conditions and the investment may generate a return over time. The bank also doesn’t “own” my home equity. If I was to sell today, even with the mortgage unpaid, I own what I’ve put towards my principal and any gains from the resale value, if any.

I’ll preface my comment by saying that I have a mortgage, so I’m somewhat biased in favour of home ownership (in the right circumstances).

I don’t think a mortgage is a form of saving, but it is strategic spending (or strategic debt, if you prefer) if you do it smartly. A portion of my mortgage payment is money I would spend anyway on renting a house (I have a family, so I can’t do a roommate situation, etc.), and the remainder is, like, a bonus I pay for the privilege of having a very, very hands off “landlord”. Unless I miss a few payments (or decide to burn down my house or something) the bank won’t get involved in my day to day decisions regarding the house. Personally,that’s a bonus, but some people may prefer having a landlord deal with stuff like maintenance. To each their own. At the end, when my mortgage is paid off, my living expenses will decrease AND I will have an asset. To me, that makes it different than straight up consumer debt/spending, which doesn’t help to (one day) decrease my expenses nor leaves me with an asset (as opposed to a consumable good of some sort).

And I just want to add: the bank doesn’t “own” my house. It owns the mortgage. I own the equity, and it’s not an insubstantial portion of the total. As long as you don’t buy over-priced real estate, and pay down your mortgage quickly, you will likely never be in a position where the bank actually owns your house. That rhetoric is as overblown as saying that you’re throwing money out of the window if you rent 😉

Your house is an asset, your mortgage is a liability. Paying down your mortgage isn’t saving, it’s paying off debt! I agree with you, mortgage debt is debt, and like all other debt, should be eliminated as quickly as possible.

This is something I struggle with, because I really want to become a homeowner, but I really don’t want to go back into debt or just put 5% down. That means I’ve got a long road of saving ahead of me.

I think the tricky distinction most people are overlooking is common usage of terms. I think a lot of people think of principal payments as a mortgage as “savings” is because that’s the term in their vernacular. What they really mean is “I own a slightly larger piece of the assets associated with that liability (aka the mortgage)”.

The husband originally bought a 1 bedroom apartment for $149,000 in downtown Vancouver and sold the apartment for about $440,000 after living in it for 10 years. That means, if he were to buy the apartment in cash, he would need to save about $44,000 a year in order to purchase it if he waited until he had enough cash to buy a place. It would be pretty impossible to purchase a place in cash in Vancouver because the price of housing has gone up exponentially the past 10 years.

So, I do think mortgage is a form of saving if you did not max out your mortgage and that if the housing market doesn’t crash, but that’s a risk one needs to take. Once the mortgage is paid off, I own the house. I no longer need to pay any money to roof over my head, except for the annual property tax and regular maintenance of the house. When I retire, I can either sell the house (hopefully at a time when the market is doing well) and downsize and keep the extra cash in the bank (and I don’t need to pay capital gains from it because it was my principal residence).

In the ideal world: once I pay off the house, I can take out another mortgage from the house and use that money to buy and other property (house or apartment) and rent that other property out and use the rental income to pay off the mortgage, so that by the time I retire, I can have the option to either rent out or sell both properties OR I can sell the house (my principal residence) and live in the other property (most likely an apartment).

I agree with your article, especially since interest rates on mortgages in the US have been over 10% in the past! Which is a lot of money! And I believe that financials categorize mortgage as a type of debt, so I never really understood why some people don’t see it that way. But it’s a debt that many people find practical. After all, buying a home is about more than just the investment.

But, while you have a mortgage, you can do things to your house (like build a new room, repaint, etc.) that you wouldn’t normally get to do to things that you don’t own. So in that non-financial sense, the house is yours.