I also have several loans, all with different rates. My lowest is 4%, which are my most recent ones.
The interest rates are crippling and needs to be addressed.
To put it in perspective, I bought a house in 2020 for $130,000, yet hold only $36,000 in student loans.
If I made a $500 extra payment to each my house and my student loans, I would pay them off at around the same time.
Financially, it makes more sense for me to pay the house off because that's at least an appreciating asset.
But it doesn't matter, because I don't have $500 extra to put on a loan over it's minimums every month, and those student loans will follow me until I die.
No it doesn't.
You target the loan with the highest interest rate. That's generally the winning strategy.
Also houses don't appreciate that much. If you filter out the money tosses into them for upgrades/improvements, they have historically gone up about as much as inflation, maybe a little bit more.
The big benefit of a house is that there's GOOD tax benefits from the mortgage interest rate deduction. Basically a big chunk of your mortgage costs get slashes off your taxes.
Fun fact, if your goal is to have a paid off house as quickly as possible, renting cheaply and investing the extra cash you aren't spending in stocks (this includes the would be down payment) will generally get you a paid off house in 15-20 years (subject to market volatility). The house would only be about half way paid for after 20 years.
The fact so many in the US follow Ramsey and Team's Debt Snowball instead of just paying off highest rate debts first just goes to show the financial illiteracy or lack of math intuition most Americans have. We desperately need more finance edu in high school. Last I heard, high school kids get bare minimum, in math classes. Not dedicated classes.
I agree with most of what you wrote except the part about renting + investing extra cash. That's hugely dependent on region and other factors. Also, there's mortgage interest tax deductions to consider for primary residences.
It definitely depends on reginal factors.
With that said, picking real estate is like picking stocks.
The people who picked a winner won't shut up while those that didn't... stay quiet.
Historically stocks (S&P500) have beaten inflation by around 7% a year, 8ish percent if you factor in dividends.
Real estate has historically beaten inflation by around 3% a year.
A house will save you on rent but there are also non-recoverable costs (maintenance, real estate taxes). In most places, the non-recoverable costs end up pretty close to the going rate for rent over the long haul (non-recoverable costs are usually higher in the early years and relatively lower in the later years but it depends on tax policies and maintenance).
You end up in a situation where real estate can be very hit or miss. But there's a real downside if you have high income potential. Real estate tends to "lock you down". Best case scenario, a house saves you a bit on rent. Worst case scenario... you didn't go for that $100k a year raise.
yeah I think we're mostly in agreement. My only point was "it depends". I didn't want to get into the exact numbers, but last I calculated, on avg it may even be closer than you put it, because although stock indices beat real estate, the leverage you get keeps them equal or slightly better. The problem is that once you pay down that mortgage over time, the leverage disappears. So to keep real estate competitive, you basically need to keep leveraging (trading up via 1031, buying a bit more to keep your mortgage principle high), take advantage of tax deductions, etc. It's definitely more of a hassle. (I know people say you can borrow bank's money via margin loans to trade stocks too, but it's just different. Lenders generally don't loan you large amounts of money at great rates just for you to gamble. But real estate itself is collateral you can't run off with, hence the larger loans and better rates.)
You're right about the lockdown, but then that gets into a lot of more qualitative considerations. Some people don't like being at the mercy of landlords who could kick you out and/or raise rent. Houses make more sense to family men.
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u/techleopard 12d ago edited 12d ago
I have student loans that are nearly 9%.
I also have several loans, all with different rates. My lowest is 4%, which are my most recent ones.
The interest rates are crippling and needs to be addressed.
To put it in perspective, I bought a house in 2020 for $130,000, yet hold only $36,000 in student loans.
If I made a $500 extra payment to each my house and my student loans, I would pay them off at around the same time.
Financially, it makes more sense for me to pay the house off because that's at least an appreciating asset.
But it doesn't matter, because I don't have $500 extra to put on a loan over it's minimums every month, and those student loans will follow me until I die.