And why would it ever be a good idea to borrow if you can pay cash and pay no interest to the bank?
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Just do the math, right now a 500k loan would cost at 3.7k a month. Let’s round up to 4k. This is using todays rates.
500k in the S&P returns 9.59% over the past 30 years. Roughly 48k per year. And after 1 year your tax on that is 0%.
20% on the 48k is 9.6k in taxes due in the first year only.
Interest payments the first year is 33k. Let’s say your top income bracket is 24% that reduces your tax liability by 8.2k.
You home owners insurance and PMI is also tax deductible which is about 3.5k equaling 800 is reduced tax liability.
So basically your first year out of pocket is $600
This is using the average return which of course is never guaranteed.
But at the end of 30 years with a loan you have a house and 500k in the market.
Without a loan you have a house still but it still cost you $3600 a year for insurance and taxes, possibly more. And no money in the bank.
Or even simpler, 500k in the market is going to be 8.5 million after 30 years.
The cost of a loan for a 500k house over 30 years is 1.3 million but probably closer to 1.5 including insurance and tax increases. And this doesn’t include refi down to a lower rate when rates are good.
I had to put 20% on my house 2 years ago. It is a 500k house. My loan amount was 380k and my payment is 1850 a month.
The market is where you want your money. Not a house.
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