Quote:
Originally Posted by nonpartisan1
Okay, it's a no-brainer to see why people take out mortgages--fixed cost over time even while inflation rages, and colossal tax breaks to boot.
But why do investors take the chair on the other side of the table? Your benefit--marginal to begin with--diminishes rapidly over time and the underlying asset may be crumbling. Why would anyone buy something which promises to be worthless as time goes by? Are there tax benefits to investors too? Or is this something which is just foisted upon unsophisticated 401k-type investors?
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The underlying asset is the land, and it gets more valuable as time goes on, so that isn't an issue.
The mortgager actually makes back what they loaned out in 16.4 years (and they are reinvesting that money as it comes in, most likely), then for the remaining 13.6 years, that's pure income for the mortgager (407,000 dollars, roughly).
That's just one 500,000 dollar mortgage (below average home price where I live). If you have 1,000 similar mortgages, that is over 30 million dollars over 13 years. 2/3s of all homes in the U.S are mortgaged (there are over 100 million houses in the U.S).
Also, unlike the stock market, if a homeowner defaults, you have collateral.
So yes, it is worthwhile - besides, if it wasn't, I doubt people would be in the business.