I see it stated a lot in social justice circles that the path to building ‘generational wealth’ is via home ownership, but having lived with homeowners, that doesn’t seem to make sense. From the outside it looks like something you throw money into for decades, and then die and the bank takes over. How does just having a mortgage start to accumulate wealth???
In: Economics
Once you buy a house, your mortgage payments are pretty much fixed. Inflation means everything else, including wages goes up. So your effective monthly cost to live goes down.
For example, if you live in my city, if you bought a house 20 years ago, your mortgage payments would be about $1000 / month. Somebody who is currently renting an apartment is currently paying around $1800 / month. So it’s cheaper to own a house than rent (assuming you bought a long time ago). Yes, you still need to pay property tax, maintenance, etc, but it’s not $800 / month.
Plus in 5 years the mortgage will be paid off, (average mortgage length is 25 years), then that $1000/mo can going into savings, while the renter is still paying rent, which continues to go up.
Then, when you die, house will be worth $1,000,000. Average family has two kids, so each kid gets $500,000 that the renters kids don’t get.
The other option is reverse mortgage. When you get old, if you run out of money, the bank will slowly give you the value of your house in cash. Money doesn’t need to be paid back until you sell the house. This usually isn’t seen as a good idea, but when you are broke, it’s better than staving. At least it gives you an option the renter doesn’t have.
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