I think my original post was clear enough.
When I spoke of alternative investments, and I threw it all into the spreadsheet, I did take income tax into account, and ran two alternatives, one in which the alternative money was invested in tax-sheltered retirment instruments, and the other in which it was not. Either way, the 30 year mortgage won. And I wasn't comparing to Amazon.com!
As for the 7.5% alternative couples deduction, it is true that I did not take into account, and this is a personal idiosyncrasy, since my accountant for whatever reason says I MUST itemize and so I take his word for it. But he has ALWAYS said I must itemize even when I didn't own a house. So the home deduction fell like mannah into this year's returns. It probably has to do with dribs and drabs, sometimes more than dribs and drabs, of Schedule C income. It just never comes up. But I suppose that there are people for whom it would make sense to consider the 7.5% as something to be taken away from the mortgage tax.
I don't know who wins the Jordan/Liu duel for big time money management. Jordan has patiently walked me through some details of bond trading so I think he too deals in sums beyond my ken.
But there is a leveraging point Liu misses. If you buy a house at $100k down and sell it year later at $110k, you have made 10%. If you buy a house at $3k down and sell it a year later at $110k, you have earned over 300%. What about the mortgage cost in the interval? It's there, but has to be measured against the cold reality that if you weren't in the house you would be renting, i.e., paying someone else's mortgage for him. So the leverage principle is there. One can say, What about exit fees? they are high. But you eat the fees no matter what, so the leveraging works for you. (And, if you have $97k that you didn't sink in the mortgage, you are earning on the alternative investments). And if it's two or three years and houses go up 20% per year, as has happened in some areas, you can more than take care of the fees.
I will say, however, that I am not the first person to come up with the observation that it is financially advantageous to have the 30 year loan. In fact the professionals who argue AGAINST the 30 year, in support of Liu's support for the 15 year, invariably say that the 15-year imposes "discipline" which is absent in the 30-year. That is, although in *theory* one could invest the money saved, people blow it on vacations and snowmobiles and what have you. There may be some truth to that.
It is also the case that the house is NOT a non-productive asset. Its return MUST at a minimum be measured against the alternative expense of renting. You have to live somewhere. You can rent money or rent an apartment, basically. If you rent the apartment you rent from someone else who is renting money. This makes home ownership rather different than a sterile investment like gold.
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
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