h a l f b a k e r yAlas, poor spelling!
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MortgageSharing
Plan for sharing of mortgages, allowing people to 'pay into' | |
This would free up people who want the freedom to move around the country or world- yet still pay off their house loans.
People would pay into a general housing fund and be credited with points of some sort. Instead of paying $1,000 or more for rent each month and only getting temporary housing, you
would instead be paying into an ownership of collective house owners.
Example: I am paying for a house in Michigan. You are paying for a condo in California. We both don't want to be locked into our areas for the rest of our lives- so we agree to live in each other's houses and pay off the mortgages for each other. Since your condo in California would be worth more than the house in Michigan, you would recieve more points than I. The more people that join widens the possibilities of places to live.
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But people can move around the country and pay off their house loans. If you have $200,000 of outstanding mortgage debt on a house worth $300,000, you sell the house (for $300,000), pay $200,000 to your mortgaage lender to make them happy and you're left with $100,000. You use this as downpayment on another house worth say, $350,000 and arrange a new mortgage for $250,000. |
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If you are living in one place and paying for another, that is redundant- you are paying for two places when instead you could be living in one place AND gaining equity. That is the purpose of this- to make your money bring back more than just housing. |
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My ex-wife uses hippo's method - I've lost count of # of houses |
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Is this to be regulated by contract between the parties, by the state or as part of a package of financial services provided by enormous corporations? |
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I've thought about this at length. Once you factor out market risk and maintenance costs and the trouble of managing a pool of properties (some of which will be vacant), it ends up exactly equivalent to the following: |
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Rent. Put some extra money into a mutual fund each month. Done. |
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The problem with [hippo]'s method is that real estate has a high transaction cost -- from 2-10% of the value of the property is lost to "friction" every time, which means you lose money quickly unless you count on appreciation (a tricky thing to count on in these days at the top of a real estate bubble). |
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People are under the slightly mistaken impression that "rent is throwing money away; paying down a mortgage is saving for the future; therefore you should own rather than rent". That's not entirely so -- people who own pay a lot of money to a bank, and they also pay money on upkeep, and they are also subject to a number of risks which renters are not subject to. It mostly balances out in the end. |
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Rent if you want the freedom to move; own if you're unlikely to move; if you want to invest in real estate, buy into a REIT or something. |
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You don't get the interest back! |
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With a typical mortgage setup, the first few years of payments are nearly 100% interest. You're saving a small amount of money each month, but if you just paid rent (which would be cheaper in most cases, counting TCO) and put the difference into a mutual fund, you'd do just as well. |
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Somewhere around 5-10 years it starts to make financial sense to buy instead of rent. (Of course there are other reasons to buy; you get more flexibility to customize and some psychological advantages, but those tend to fade for people who are likely to move soon.) |
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Look, renting exists almost entirely *because* people want the freedom to move. That's what it's all about. If you want to save money independently of owning a specific home, then there are other, better investments to make. |
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If you are trying to seesaw your way up into ever more expensive homes you might consider using a line of credit rather than a mortgage. It helps a lot to use a private mortgage lender for the LOC as they write their own underwriting and approval rules on a case-by-case basis. |
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// Buying also gives you the benefit of capital accretion through inflation and value increases. // |
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If you think real estate in a particular market is a good investment, there are easier ways to participate than by buying a home. (And why limit yourself to the market you happen to live in?) |
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[egnor]Right; Let me show you a fine selection of second homes and vacation properties from our Time Share inventory. |
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There are a number of assumptions in this idea. Firstly that you can find people who may want to exchange locations. Secondly, that they are going to want to exchange locations at the same time. Thirdly, that they are going to be earning comparable incomes. Fourthly, that they like the same sort of houses and fifthly, that all of the above are going to remain constant over time. These assumptions generate an awful lot of if's and but's to my mind and I suspect that the scheme, if it ever got off of the ground, what start to unravel pretty quickly. To my mind, the only practical way to address these problems is to have the same system as we have in the UK, i.e. a Housing Association or Council owned pool of properties with the residents paying rent and able to just exchange location and rent with any willing partner in the pool. But then, of course, you don't own the property.
Just as a footnote to some of the anno's above. You may be interested to know that, by and large, it is more expensive to rent in the UK private sector than to buy. |
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