The amount of debt Americans routinely and causally take on is honestly ridiculous.
Yes, on paper I can accrue more wealth if I mortgage my house and invest that same amount elsewhere. No, I would not trade owning a house outright for having a house that will be taken from me if I can no longer pay, strict insurance requirements, and a pile of someone else's debt that I call money and ignore the risk implied in investing in someone else's gamble.
I used to be very debt averse. Owing a six figure sum seemed like a huge burden. Now I understand that mortgagees are non-callable. If you put 20% down that removes a lot of risk of being underwater. Fannie Mae is eating inflation risk for you. It's a way of smoothing expenses over multiple life stages. With a 30 year mortgage you can get a smaller payment when you're younger, earning less, and paying for daycare. When you're older you're earning more, might be an empty nester, and inflation has made each payment easier. By not rushing to pay off low interest debt you've effectively transferred money from 50 year old you to 30 year old you.
If you stayed employed, locked in a 3% mortgage, and contributed to your 401k, you won the wealth re-distribution game of 2020-2022.
> Now I understand that mortgagees are non-callable.
How are you defining non-callable? If you stop paying on your mortgage that sent will eventually be called and you will be kicked out.
> If you put 20% down that removes a lot of risk of being underwater
That removes the risk of being underwater for any market correction sub-20%. Real estate prices in any areas have grown more than that ovwr the last few years, the risk of a 20%+ correction is on the table.
> With a 30 year mortgage you can get a smaller payment
And a 40 year loan would be even smaller. Where do we draw the line, and why? 30 year loans weren't always the norm, you don't have to go too far back to find an average mortgage on 10 or 15 year loans.
> When you're older you're earning more, might be an empty nester, and inflation has made each payment easier.
Income doesn't always move up, and inflation only makes payment easier if you (a) secured a fixed rate loan and (b) stay in the same home long term.
> By not rushing to pay off low interest debt you've effectively transferred money from 50 year old you to 30 year old you.
Or if it doesn't work out, 30 year old you has a home at the expense of 35 year old you.
> If you stayed employed
That's a big if, and you not only need to stay employed, you need wages to at least keep up with true inflation. Your 401k won't matter until you are at an age where you can withdraw, or we have another pandemic-style response where we allow people to cash in 401ks without the early withdrawal fees.
The problem is:
1) that encourages you to buy more car (and lose more money in depreciation and fees) than you would if you just paid cash for a cheaper car
2) there’s no guarantee you can beat your APR in the short run (to beat your APR you almost always have to move out on the risk frontier… T bills are not doing it)
I view it as: if capturing that marginal spread of whatever% is important to you, you are spending too much money and you’re probably taking your eye off a bigger loss you’re taking by spending all that.
The car “generates income” because it allows you to get to work and hopefully make more than your car note.
A $3k repair loan is a lot easier to pay off than a $30k new car loan.
A lot of the people I know try to justify “new car fever” and will use some version of “I don’t feel safe in it anymore” or “I don’t think I can trust it.”
I’ve only had new car fever once. When I was 25 and bought my second car - a Mustang in 1999. I drove my Mercury Tracer that my parents bought me in 1991 as a junior in high school.
But that car was wrecked in 2008. I gave my next car - a Honda Civic - to my step son in 2014 and my next car after that - a 2012 Chevy Sonic bought slightly used from CarMax in 2020 when I started working remotely and we went down to one car.
But I would still much rather by a cheap newish car that I don’t have to worry about than a beater that might put me down or more importantly my wife.
My mechanics often perk up when I bring in my 80s era pickup. It has very low miles, they can generally diagnose it with very basic tools, and parts are cheap. When I have the time to work on it myself I appreciate it for those exact same reasons.
And it’s one thing if your car breaks down on a side street, it’s completely different if it breaks down on an interstate. If you have a daughter would you be comfortable with her driving an unreliable car? Your wife? Your mother?
I like to say that I can afford it, I just don’t want to and refuse to afford it.
This country is insanely ego and pride focused or fixated.
Capitalism exploits this in advertising.
Americans throw money at everything and then wonder why they're broke.
Or in the case of cars, people finance a new car and throw money at repairs instead of doing what folks like you and I do. Buy a reliable older car that's cheap to work on. But that takes "learning" and most Americans are convinced that learning is a waste of time, just throw money at the problem.
