There's mileage in that argument. consider this:
In a 30 year fixed mortgage, at any rate, it takes 21 years of monthly amortization (monthly payments with NO additional money toward principal) for the PRINCIPAL balance to reach 1/2 of it's starting point. (With a 15 yr fixed it takes 2 years to get there).
People need to get their heads around what the EFFECTIVE RATE of their loan is, regardless of what type of program they're in. Even a fixed interest loan is technically an ARM depending on how long you stay in the loan/house. Example:
$150K borrowed on a 30 year fixed loan at 6% (for argument's sake), roughly $900 per month P & I. $10,800 per year roughly in payments.
After 12 months of payments $8949 services interest, $1842 chews into principal bringing the principal balance from $150K down to $148,158.00. so in year one, it costs you NINE grand to pay off $1800 worth of debt.
During year 7, $8154 services interest, and $2637 chews into principal. 7 years how long the avg American keeps a home for (and unfortunately, they REFI more often than that, starting the Amort ALL OVER AGAIN)
....but let's say they didn't refi - let's say at the end of year 7 it's time to move. 7 x 10,800 per year = $75,600 invested IN THE LOAN (a good loan at that) - Roughly $60,000 has been spent in servicing the interest, and onlly $15,600 of the principal of the loan has been paid back. That is NOT a 6% interest rate.
It's only a 6% interest rate if you KEEP THIS LOAN FOR 30 YEARS. Know anybody who has done that?? I do, my folks. In September, they JUST paid off the 30 year note on the house I grew up in. They had the thing built in September of 1977, and have been in it ever since and have NEVER moved or refinanced. Other than them, I've never seen anyone do that. Think about where you were in Sept 1977. That;s how long my folks kep their mortgage.
Back to the folks who are moving after year 7 - $60K invested in interest, $15K actually paid back on the loan. This is an EFFECTIVE interest rate in the neighborhood of 60%
. It's ONLY a wise investment IF the house appreciates.
(OR if they PAY DOWN PRINCIPAL, which is what EVERYONE SHOULD DO- or take out a 15 year loan and make due with 4 Luxury cars instead of
) Not much of ANY of that has been happening in the US recently.
NOW, the ILLUSIONARY profit people see in times when RE market is bouyant:
Mr. and Mrs. Jones bought their house in 2000 for $150K, 6% 30 year fixed. They lived happily in it for 5 years, had another kid, and in 2005 put it up for sale for $190K, and it sold in one day. Mr. Jones says to Mrs. Jones "honey we did GREAT, we made $40K in profit on our investment!!" Mrs. Jones says "honey, that's why I married you, because you're SO SMART" and bangs the shit outta him that night, and they wake up the next morning happy as clams.
Problem is that they actually LOST money - they made 60 monthly payments of $899.33 (p & I) for a total amount of $54K, $43K of which went to interest
, and the other $11K went to principal, bringing their principal bal down to $139K. So they made $40K in equity on the house, and $11K in equity on the loan - $51K, basically a WASH in investment terms, and when you factor in closing costs and fees, they're in the negative.
In a market where housing values arent appreciating, they're REALLY in the negative. If they held onto that house until 2007, they wouldn't be much further into that loan, and they'd only be able to sell that house for 160-170, if AT ALL.
A House is an investment. A mortgage really isn't....unless you manage it properly.