Marianne Cicala wrote:So if my savings are getting me less than 1% and the land I want is appreciating in value at 5%, I'm in the hole.
Joseph Lofthouse wrote:
Do I want to dedicate my life to a system that enriches debt-predators, or do I want to build a system in which bankers are marginalized?
Mike Cantrell wrote:Hi Marianne,
Thanks for your thoughtful and friendly approach, and for bringing up a topic that is on lots of Permies' minds.
I've got to quibble with your description of income tax treatment.
Lots of folks in the US don't pay any income taxes, (43% of households) so for almost half of people, this is irrelevant, there's no savings to be had.
For the rest, the savings is as you described... but it's 25% off only for couples earning well over $85k/year. That's not very many!
AND THEN, it's only a savings if you itemize your deductions. Your standard deduction (married) is about $12k. So IF your interest deduction and all your other deductions (charitable giving, etc) add up to more than $12k, then you can itemize.
Exactly how many Permies here are in the 25% tax bracket AND are itemizing? I wish I knew, but I guarantee it's not many.
-If you're among the 43% not paying any income tax, a tax savings won't occur for you.
-If you're among the65% not itemizing, a tax savings won't occur for you.
-If the above two don't describe you, BUT you're earning less than $85k/year (married), then the savings will be less than you described.
So what you've said isn't technically inaccurate, it's just true for almost nobody.
(I'm giving you nationwide averages here. My wife happens to be a tax preparer, and she says that the day-to-day anecdotal evidence lines up with this, too. )
That's one thing. Tax savings for mortgage interest is a special case, not a typical benefit.
Second, John Wolfram beat me to punch to point out that the high price of land right now is a reason NOT to buy. The price has gone up, therefore I should buy some? No. The price has gone up, therefore I should NOT buy some.
There's a third one. The career trap. A commitment to paying a mortgage is a commitment to maintaining a steady income. It's a plan to NOT take any risks (like starting a business) that might decrease your income below a certain threshold. It's a promise to only do things with your life that bring in at least as much money as what you're currently doing, regardless of how your situation might change. Regardless of getting divorced or disabled. Regardless of developing a spiritual, artistic, ascetic, or philanthropic streak. Regardless of coming to hate your job. (Drew Carey on hating your job: https://www.youtube.com/watch?v=Ph9I-qPQ6FU)
A mortgage is not too bad an idea for someone who's confident their income is going increase slightly for the duration of the mortgage, with no gaps or up-and-down swings.
"When you add in all of the cool stuff that could be done over a 10 year period to the land...
This is the real reason. I want it now, and I'm willing to pay the price, both in money AND freedom, to have it now. If someone's clear on the price, and they're willing to pay it, I say go for it. But only if the really understand the price.