Why the 30-Year Mortgage Sucks

The American Dream says to own a home. The cultural message says to use a 30-year mortgage. This is why you maybe shouldn’t do either.

Ron Hubbard, the founder of Scientology, once said, A culture is only as great as its dreams, and its dreams are dreamed by artists.

Hubbard was an artist. He created an extravagant story about aliens coming to the planet 75 million years ago on a spaceship until a dictator named Xenu killed them all with hydrogen bombs.

Or something like that.

The point is that Hubbard used the oldest trick in the book to build wealth: He made up stories and got other people to believe them.

It worked. Hubbard died with a net worth of over $600 million.

A culture is only as great as its dreams, and its dreams are dreamed by artists.

What is the American Dream?

There’s a collective — perhaps unconscious — dream that permeates American culture.

It is called the American Dream, and although we don’t know the artist who created it, we do have its checklist to follow:

  • Birth
  • Go to school to learn to socialize, play and obey
  • Graduate high school
  • Take out loans to go to college
  • Get a job
  • Start investing in stock market through retirement accounts
  • Get married
  • Use a 30-year mortgage to buy a home
  • Have kids
  • Get promoted
  • Take out loans to buy cars
  • Use credit cards to go on vacation
  • Keep investing into stock market through retirement accounts
  • When you reach 60 years, you will be rich and can retire and do whatever you want
  • Death

Our friends, family and society-at-large want us to follow this formula. There is comfort in the collective. If you don’t follow the formula, they will feel uneasy.

They might realize they had a choice.

Use a 30-Year Mortgage to Buy a Home

About midway through the checklist it says, Use a 30-year mortgage to buy a home. This life event is one of the most culturally-accepted and encouraged.

It’s part of the American Dream!  It’s a great deal! Payments are low! After you buy your home, you’ll have kids and get promoted! 

All items on the checklist, especially if you aren’t a basic bitch, should be examined for accuracy. Does this work for me? Do I believe this? Do I know my motives for doing this? Who is profiting from this action? Are there alternatives? 

Related Reading: Eight Reasons I Don’t Invest for Retirement

Not everyone should buy a home. And very few who do, should do it using a 30-year mortgage.

The 30-Year Mortgage Origin Story

Before the 1920’s, when a person needed to borrow money to buy a home, his or her local bank would use their own funds to issue the mortgage. For example, if John needed to borrow $50k, the bank would use the savings deposits from other customers to lend to John.

If John didn’t pay back the mortgage, the bank was in trouble since those other customers would eventually withdrawal their money.

For this reason, banks back then were strict and selective when it came to mortgages. Repayment was often expected within 5-10 years, and down payments were upwards of 50% of the home’s value.

Despite these precautions, the stock market crash of 1929 surprised everyone and thousands of banks failed. Mortgage customers who couldn’t make their payments largely contributed to the problem.

Following this dark period in America’s history, the government stepped in to prevent banks from ever failing again. It created two agencies:

Fannie Mae (1938)

Fannie Mae was created to buy mortgages from the banks that issued them. So when John borrows $50k to buy a home, his bank will now sell that mortgage to Fannie Mae. That way, if John defaults, the bank won’t be affected and is unlikely to fail.

Federal Housing Authority (1934)

The FHA was created to increase home ownership in America. It is the FHA that introduced a mortgage with a 30-year repayment plan, absolutely unheard of at the time. These new mortgages came with rock-bottom interest rates and minimum down payments, only 5% – 10% of the home’s value.

The government’s plan worked beautifully. Since the banks no longer carried any risk, they issued 30-year mortgages at a record rate. Home ownership in America soared from 43% in 1940 to 64% by 1970.

Related Reading: America’s Socialist Housing Market

Who Benefits When You Use a 30-Year Mortgage? 

Few Americans question the 30-year mortgage since it’s the socially-acceptable way to buy a home.

But this is where cultural paradigms come into play. Just because a group of people — an entire country in this case — accepts something, does not make it logical.

Cultural paradigms are theories of how to view the world. They are similar to personal paradigms, except that when a cultural paradigm is adopted, its purveyors benefit financially. For example, Ron Hubbard was the purveyor of Scientology, which is an (isolated) cultural paradigm. His followers adopted his paradigm as truth, which enriched only Hubbard, leaving his followers broken financially and emotionally.

Related Reading: What are Cultural Paradigms?

The US government and financial services industry benefit financially when Americans buy homes, especially when we use a 30-year mortgage.

For the government, it’s all about GDP. The housing industry’s economic activity represents over 11% GDP. In addition, there is tremendous economic activity each time the government buys a mortgage from a bank. When Fannie Mae purchases conforming mortgages, it packages them with other mortgages and sells them to financial institutions. The financial institutions then sell the mortgages to retail investors like you and me. This is a massive economic machine that the government needs to sustain.

But of course the banks also benefit. Thanks to Fannie Mae, banks issue billions in mortgages bearing no risk whatsoever. And they profit egregiously from all the paperwork. Mortgage origination fees account for $1 trillion in revenue annually, and mortgage insurance (PMI) brings in a cool $400 billion.

The government and financial services industry are way more powerful than Ron Hubbard. Hubbard left his followers broken emotionally and financially — is this what’s happening to us? We need to question the marketing messages and American Dream checklist for what it truly is.

In other words, are we being liberated? Or controlled?

Why the 30-Year Mortgage Sucks

Below are the primary selling points of the 30-year mortgage. In blue, is another perspective.

1. Low Monthly Payments

Truth: You will pay twice as much for the home. If the loan is $180,000, you will pay back $360,000. After 15 years of making payments, you won’t even own half your home. This is because only a small percentage of your payments go towards the asset itself, most goes towards fees and interest.

2. Peace of Mind

Low mortgage payments mean you’ll have more to save for emergencies, job loss, etc.

Truth: Being hundreds of thousands of dollars in debt does not bring peace of mind. Plus, when the payments are low, people buy bigger homes than they need which is a fast track to keeping up with the Jones’s. 

3. You’ll Build Wealth

If your mortgage rate is 4.5% and you invest in the stock market earning 8%, then even while paying off the mortgage, you are earning 3.5% on your money!

Truth: The interest rate you pay is guaranteed, the yield on investments is not.

4. Payments Decrease Over Time

The monthly payment decreases because of inflation and higher wages (if inflation is 3%, then a $1,000 mortgage payment becomes $750 after 10 years). Also, if your mortgage payment started as 25% of your take-home pay, over time it may only be 10% or 15% of your take-home pay, because you’ll earn more.

Truth: If you follow economic data in our country, you know that wages have not kept pace with inflation. Not even slightly. This marketing message is from a different era and no longer applicable.

5. Your Home is a Source of Income

You can borrow against the equity. You can also refinance at any time if interest rates decline, which allows you to pocket the gains in appreciation.

Truth: Borrowing against your house is the same as a cash advance on your credit card. In addition, banks are thrilled when you refinance because it sets the clock back on payments (meaning the first few years of payments are mostly interest and fees).

6. Can Pay Off at Any Time

Truth: This is hands down why the 30-year mortgage is an amazing deal. Unfortunately when most Americans pay off their mortgage, it’s to refinance or to buy another home.

The 30-Year Mortgage Strips You of Freedom

You probably disagreed with the counterarguments above, most people do. And I get it — the 30-year mortgage is great because you can pay it off early. But how many Americans do that?

No one knows.

The point I want to make is in regards to the individual and their life choices.

Debt has made a farce of the American Dream. Life is about taking risks, exploring passions, traveling, learning and spiritually healing. Student loans, mortgages and car payments run the risk of imprisoning and stunting the evolution of man.

Related Reading: How the Government Caused the Student Loan Crisis

Every human’s objective in life is to align with their soul and express its desires. This is how we become our authentic selves.

But if we are running around to pay the mortgage, car loans, credit card debt and LIFE, how well are we connecting with our souls to listen and understand the passion and desires it craves to express?

Related Reading: Why Spiritual Healing Matters

For a $180,000 loan at 4.5%, you’ll pay $148,000 in interest. The same loan on a 15-year mortgage will only cost you $67,000 in interest payments.

Sure, you could put the difference in the stock market and hope to yield more than 4.5%. But what else could you do? Could you start a business? Engage in extended travel? Stay at home with your kids?

It’s sad to hear people staying at miserable jobs and living miserable lives — because they have a mortgage to pay.

What are you really giving up in your life in exchange for the low monthly payments?

In Conclusion

The 30-year mortgage has enjoyed a well-funded and popular marketing message for decades. As with all cultural paradigms, the purveyors of the paradigm are who benefit financially. It took Ron Hubbard of Scientology years to mold the minds of his followers until they voluntarily opened their pocketbooks to the point of poverty.

If you think the US government is above campaigning nefarious marketing messages, look no further than the sugar industry’s Eating Fat Makes you Fat campaign of the 1970’s and 80’s. With the government’s support, that campaign got America to be scared of avocados while it infested our food chains by putting sugar in everything.

Related Reading: This is Why You’re Fat.

Owning a home is great. I own a home. But we should want ourselves, our friends, family and neighbors to feel liberated and creative in life. We want them to spiritually heal and discover their authentic selves.

So stop. Think. Breath. Run the numbers. Consider alternatives. How do you want to live your life? What are your motives? What options do you want in the future? Is buying a home — and using a 30-year mortgage to fund it — the right decision for you?

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