Killing MORE Myths of Homeownership
So my last article on the myths of homeownership was so popular I decided to produce a sequel. This is not so hard because there are so many. Enjoy!
Myth #6 – Once you pay off your home you get to live in it for free
The theory goes you have 30 years of payments (lets assume you haven’t, like friends of mine, refinanced it over-and-over again pushing out the end of the loan). After that you have no more payments. With rent you will have payments every month forever. The latter is true, the former notsomuch. In fact there are many substantial ongoing payments you will encounter with your house including:
- Property tax is forever so you pay that every year even after the mortgage is done. It may also be variable depending on the property tax laws where you live. So it behaves like rent both in its ongoing behavior and the fact that it can change and grow over time. Here’s another thought to consider. Property tax is a major source of school financing. Given the “great recession” we are in (and will continue to be in for the next 2-5 years) other sources of funding are being cut making schools even more dependent on property taxes. As school quality is a major contributor to housing values expect home owners to be extorted into paying increased property taxes to preserve their home values.
- Maintenance also goes on forever and that is variable and unpredictable. So it also behaves like rent but much more violent in its swings. I never got a bill from my landlord for $15,000. As a homeowner its only a matter of time before you get that bill for a new roof ($15,000) or new pipes ($thousands). Sure renters implicitly pay maintenance but it is more smoothed out through the rent and periodic rent increases. Oh and if you live in New York City you are familiar with “maintenance payments” which are often substantial (in the thousands) and are paid monthly (like rent).
Myth #7 – At least your monthly payments are predictable and won’t go up like rent
Well this really depends on how you financed it. A very large percentage (and possibly the majority) of mortgages done in the past 8 years were adjustable-rate. That could swing way above rent or way below depending on the interest rate environment. Given the dramatically low interest rates that drove the housing bubble and there is really no where for your mortgage payment to go but up. Combine this with the large amount of cash being pumped into the economy (which will lead to inflation) and you are looking at MASSIVE interest rate adjustment 2-5 years out meaning your “rent” is going to go up possibly 20-100% (my rent has never gone up more than 10% and that was during a boom and during a bust it actually went down).
So remember, homeowners and renters are not so different except for the massive loss in equity that ownership is currently providing.
Please feel free to bust more housing myths in the comments section.
May 10, 2010 at 8:39 pm
You forgot another myth: the myth of modifying the house any way you like. Homeowner associations are notorious about pickiness about even minutae like the number and type or color of flowers in the flowerbeds. To say nothing about solar panels!
December 1, 2009 at 2:28 pm
I think people forget how nice it is to call the landlord when something breaks. I think the whole “Pay nothing when the house is paid off” is how my grandparents saw things. Now on average people move at least every 7 years.
October 14, 2009 at 4:56 pm
Myth #1: – *ALL* homeowners took out 30 year mortgages to buy their homes.
Thank you, Marcitz! Without you and those that think like you, I’d be out of business and have to (UGH!) *work* for a iving, LOL!! I really should put you on my payroll, as your spreading your (outdated) philosophy and out-of-touch grasp of “the numbers” nowadays, keeps me in willing vict,..er, “tenants” who not only pay my newly-bought houses off in less than 5 years, but also continue to provide me with passive income long afterwards. I (Heart) Renters!!!!
June 8, 2009 at 5:47 am
I’ll comment here since the previous post is probably stale.
The thing that you have to rember about the mortgage deduction is that it is intended to equalize the playing field between landlords and owner/occupiers. The Landlord gets to deduct his mortgage interest as a business expense. This means that without a mortgage deduction it is likely that there is a purchase price that makes economic sense for a landlord but not for an owner occupier, depending on the tax rate and other costs. –Of course in most areas of the U.S. today, prices still don’t make sense for ANYBODY.
May 6, 2009 at 2:13 am
Very good information! Every house owner that has a mortgage on the house, as well as those who want to buy a house should be aware of the risks he is exposed to and should think twice before he signs!
May 4, 2009 at 9:06 pm
[...] See more myths in this follow-up post. [...]