12-04-2012, 05:12 PM
Grieve Wrote:Look at it another way. Two people each buy a house for $400k. One puts down 5% (20k). The other puts down 20% ($80k).
Massive depression occurs, they both lose their jobs, house value falls to $200k. At that point they both have a house way underwater, but one is out $20k in "real" cash while the other is out $80k.
Opposite occurs - massive recovery. House value goes up to $600k. The first person has seen their $20k investment rise to $220k (equity in the house) - 11 times it's original value. The second person has their $80k rise to $280k in equity. Still very nice, but only about 3.5 times the original stake.
For the record, I have always put down 20% (including my current house), but the options trader in me says that lower percentage gives the best bang for the buck.
And of course until they axe the mortgage deduction, the more interest you pay the better (especially if you are high income).
Yes, but as we saw during this housing bust, people weren't willing to pay mortgages on their house when they were so far underwater and walked away from them (or bought some silly mortgage product so they could only put down 5% whose interest rate skyrockets after 3 years) losing whatever they put into it and destroying their credit, whereas those of us who put down 20% could ride it out and still get some semblance of a return on the sale when the market starts recovering.
And you can also be in the situation I am in, where we are selling our starter home and upgrading. So say the market drops 20%:
400k house is worth 320k.
600k house is worth 480k.
I lost 80k on my sale but am gaining 40k in new home equity.