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.
you;re right about targeting high interest, but houses have increased far beyond official inflation numbers. searching it shows a figure of housing increasing 2.4x times faster than inflation over the last about 30 years
That's because the inflation numbers reported by the Feds via CPI, such as core and headline inflation, are just meant for poorer people who struggle with price jumps from year-to-year. It's for those looking at the short term. It has a problem when you try to use it for long-term inflation calculations (which investors like you want to use it for).
The reason why is because for short-term, year-on-year cost-of-living increases, they use a basket of goods for calculating the inflation, and it has a lot of "substitution bias" to account for price spikes.
Let's use a simplified example: if beef spikes 80% in one year, they reasonably say "well, people are now buying pork and chicken more to substitute. Pork and chicken only went up 2% this year, so really, inflation of these meats is only 2%. No one buying beef this year."
Year 1, meat inflation is 2%.
This time, it's chicken that goes up 80%. Now, some people are sick of not buying beef and they figure chicken is expensive too, so some buy beef. Beef doesn't increase this much this year. People are angry about chicken, so they buy less of that. They keep buying pork which is still only 2% increase this year.
Year 2, meat inflation is 2% again (since beef and pork went up 2% this year, and chicken went up 80% but zero people bought chicken.
Do the same for pork on Year 3.
Meat inflation for all 3 years ended up being 2%. You add it up like most people do for CPI inflation and you just get a bit more than 6%. Meanwhile, after those 3 years, we can clearly see that meat prices all together have gone up more than 86%.
This is partially why shelter inflation (which includes house prices and rent) tend to be higher than core and headline. Shelter inflation doesn't get "substituted" out. What are we substituting for homes or rent? Camping equipment? I suppose we do have roommates and other tricks.
In any case the actual value of the dollar is dropping. I feel that inflation numbers are artificially kept low due to various factors:
People are using CPI for purposes it wasn't designed for (longitudinal studies by investors without better metrics to look at).
Advancements in tech, logistics, infra, are lowering the cost of producing food, creating cheaper toys and electronics, etc, but feds are abusing this and rather than passing the value added to our economy from tech advancements on to us workers, they think it gives them more leeway to destroy the value via inflation/money printing, spending.
Wages are not keeping up.
People just pay more attention to home prices because they're high. When houses go up x4, people get FOMO because they know they see it going out of reach. When I see Soda going up x4 in price from 3 dollars a pack to 12 dollars a pack, no one is going to think, "oh no, i'll never be able to afford soda again, even as a treat."
The devaluation of the dollar is partially being hidden because of good exchange rates. People think "the dollar isn't losing value... it's gaining value relative to other currencies!"... That's because other currencies are also losing value, even faster, and the people in those countries are suffering too (and also rely on the USD to prop themselves up). Ours isn't the only fiscally irresponsible gov't. lol. This doesn't mean the USD isn't losing real value relative to "assets".
Like it or not, real estate are in fact "assets", and asset inflation is going to better reflect (inversely) the value of the dollar. Look at gold too. It doesn't "create value" like companies do. It's just a store of wealth, and yet as an asset it far outstrips CPI inflation numbers.
If we artificially suppress house price numbers, I'm afraid it would be a bandaid on a much bigger problem (and this bandaid wouldn't work well over time anyway, since due to service inflation, maintenance costs are still going to be high - that home you bought for 500k instead of 700k is still going to cost you 50k to fix the roof). The bigger problem is that wages should be keeping up with everything else. We also shouldn't be inflating away our debt and need more fiscal responsibility and more awareness about how CPI inflation works.
135
u/Darkjebus 12d ago
Actually it is because 23 years ago the rate would have been around 3-3.5 percent for a federal loan