Very few people can afford to pay for homes in all cash up front. Plus, financing a home is usually a great idea, since they tend to be appreciating assets (as long as the interest rate is lower than the rate of appreciation).
There’s a strong historical case to be made that houses only cost what they do because they receive government insured mortgages and preferential tax treatment. The costs rise to consume the available funding.
The reason owner-occupied financing gets that tax benefit is to put owner-occupant buyers on a (more) equal footing with a commercial borrower as commercial interest is deductible as a business expense against income whether it’s startup costs, financing a factory, an airplane, or a rental house.
If financing a home is such an obviously great deal then why are mortgage lenders okay issuing debt with very long fixed interest rates when they receive nothing from the appreciation of the underlying assets?
Very few people can afford to pay for homes in all cash up front. Plus, financing a home is usually a great idea, since they tend to be appreciating assets (as long as the interest rate is lower than the rate of appreciation).
There’s a strong historical case to be made that houses only cost what they do because they receive government insured mortgages and preferential tax treatment. The costs rise to consume the available funding.
The reason owner-occupied financing gets that tax benefit is to put owner-occupant buyers on a (more) equal footing with a commercial borrower as commercial interest is deductible as a business expense against income whether it’s startup costs, financing a factory, an airplane, or a rental house.
4 replies →
If financing a home is such an obviously great deal then why are mortgage lenders okay issuing debt with very long fixed interest rates when they receive nothing from the appreciation of the underlying assets?