The word mortgage comes from French, combining the meanings of the words "mortal" and "engagement" into one dysphemistic way to describe the deathly pact we make when we buy a house. With the ensuing real estate stagnation, which could easily turn into an all-out freefall at any second, I've been looking more seriously at buying. I'm betting on house prices in the Bay Area falling another 10% or more by the election. This year, the economic stimulus package will allow us to borrow up to $729k before getting jumbo loan interest rates (as opposed to $417k).
So over the weekend, I made myself this nifty little fixed mortgage calculator. There are probably some bugs in it, but it helped me a lot. Unlike other Rent vs. Buy calculators out there, this one also compares 15yr to 30yr investment growth. For example, if I took a 15 year mortgage, paid it off, then invested the money I would have spent for the next 15 years, how would that compare to just getting a 30 year mortgage? Unsurprisingly, a simple 30 year mortgage would just beat a 15 year mortgage for the first 15 years, and then the 15 year would take a major lead.
Therefore, my plan is to buy something small, like a condo, with a monthly payment we could afford, on a 15 year fixed mortgage (low interest), and maximize our tax benefit (short time span). If we survive, we'll be able to buy a real house in the future for half the interest, with the only major risk being a real estate rut that lasts over 5 years. Now obviously the better my investment yield the bigger a hit it is to buy a house, and while my yield is pretty good, that's not the only reason to buy a house, and houses tend to be inflation-safe.
And that's how I'll sign my own death warrant.