I recently heard an executive of one of the nations largest home builders say, “With interest rates so low, consumers are looking to buy much larger homes than they could otherwise afford.”
Think about that for a minute.
It’s not unlike those people who lease a vehicle, but could not afford to purchase the same car.
Would it ever occur to these folks that with low interest rates they could buy the house they could actually afford with normal interest rates and save the difference … perhaps toward retirement?
For example: let’s say because of interest rates at 3.92% you can borrow $400,000 and get a larger house than you need. That gives you a mortgage payment of $1,891 a month. However, instead of upgrading to that house, you stick with something totally adequate, but more modest and borrow $300,000 leaving you with a $1,418 mortgage thereby saving $473 a month.
Invest the difference and by the time your mortgage is paid off you will have about $857,341 in the bank (avg 7% annual return).
But you see, except perhaps for us old guys raised by people who lived through the depression and are irrationally frugal, Americans don’t think that way. Oh well, by the time the poop hits the fan, us old geezers will no longer be worrying about such mundane things as the future.