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The 30-Year Mortgage is Trash

Last updated on August 8, 2020

The American Dream Comes With 30 Years of Debt

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 told his followers that an alien dictator named Xenu brought his species to Earth 75 million years ago and killed them with hydrogen bombs. Therefore, humans today are a hybrid of human and alien.

Hubbard died in 1986 with a net worth of over $600 million.

Who knew storytelling was so lucrative….

The American Dream = Debt 

Many say that Scientology is a nutty religion and Hubbard’s followers must be gullible.

But let’s not forget our own stories.

What about the American Dream? No one knows who created this story, but it says happiness is achieved by following these steps:

  • 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 the stock market through retirement accounts
  • When you turn 60, you’ll be rich and can do whatever you want
  • Death

Did you notice that every major step on the ladder towards happiness requires money?

And since the Federal Reserve destroyed the dollar (and people can’t save), it’s common to use debt to finance The American Dream.

Interestingly, Scientologists are also asked to spend money, tons of it, to prove their faith.

The parallels make me wonder if perhaps The American Dream is a story like Xenu and someone is getting rich from us believing it….

If you think about it, 30 years of debt to buy a home does not make sense; neither does borrowing $75k to attend a liberal arts university.

A cultural paradigm is a story you’ve been told that benefits the purveyors of that story.

And I have no doubt The American Dream is a cultural paradigm that benefits others more than it benefits you, especially considering how expensive it is.

Related Reading: What is a Cultural Paradigm?

The Story of the 30-year Mortgage… 

So who invented the 30-year mortgage?

Up until the 1920’s, if John needed to borrow $5k to buy a home, he would go to his bank, they’d review his information, and the two parties would agree on loan terms.

To lend John the money, the bank would use the savings deposits from other customers. If John didn’t pay them back, the bank would be in trouble since the other customers would eventually withdrawal their savings.

Banks were strict because they assumed all the risk. Repayment of the loan was expected within 5-10 years and down payments were often 50% of the home’s price.

Things changed when the stock market crash of 1929 surprised everyone and thousands of banks failed. To prevent this from ever happening again, the government passed legislation which resulted in two new government agencies:

Fannie Mae (1938)

Fannie Mae was created to buy mortgages from the banks. For example, when John borrows $5k to buy a home, the bank won’t use customer deposits to make the loan. Instead, it will sell his mortgage to Fannie Mae. If John doesn’t pay back the loan, the bank won’t lose any money.

Federal Housing Authority (1934)

The FHA was created to increase home ownership in America. To do this, it introduced a mortgage with a 30-year repayment plan (unheard of at the time). These long-term mortgages came with low interest rates and minuscule down payments, only 5% – 10% of the home’s value.

So did the government’s plan work?

On the surface, it appears so: Banks issued millions of 30-year mortgages and homeownership in America soared. In 1940, only 43% of Americans owned a home. By 1970, that percentage increased to 64%.

That said, this was post-World War II America and the economy was exploding on every front. There is no evidence that the FHA or Fannie Mae contributed to the rise in homeownership.

In fact, homeownership in America hasn’t budged since 1970 but somehow Fannie Mae, Freddie Mac, and other government housing agencies keep growing in size.

Related Reading: The Dirty History Behind Student Loans

The 30-Year Mortgage is Unique to America

No government in the world controls its housing market as tightly as in America.

Whether we’re talking about England, France, Germany, Italy or Spain, most people get variable-rate, short term mortgages, averaging 10 or 15 years.

Actually, other governments don’t encourage or discourage homeownership; they view it as a personal preference that should be decided by the individual.

Imagine that!

For example, in Germany renting is not viewed as inferior and less than half the population own a home.

In China, over 90% of citizens own a home but 80% of them did so using cash.

Over 80% of Mexicans own a home, but only 13% of them used a mortgage since lenders are not trusted.

America is the only country where the government controls every aspect of the home-buying process. The US government sets our rates, guarantees our loans, sells our loans to investors, collects profits from those loans, bails out the banks that make bad loans and bails out the lenders that lie and cheat.

And it does all of that using our taxpayer money. 

Did you know the US government even requires banks to issue a certain number of mortgages each month? In other words, our own government encourages bankers to pressure customers into taking out mortgages.

And yet we are still at the bottom of the barrel when it comes to homeownership; according to Wikipedia:

american dream ownership

Looking for the US? 

We are #43 with 65% homeownership.

Related Reading: Retirement Accounts are a Joke

The 30-Year Mortgage’s Marketing Campaign

How many Scientologists sit through the time-consuming Training Routines and question their beliefs?

At what point does quitting your job, taking your kids out of school and giving every last penny to the church stop making sense?

Cultural paradigms are designed to keep examination and analysis at a minimum. This is precisely why few Americans ever question the 30-year mortgage.

But just for fun, let’s review its’ marketing message and compare that with the facts:

Low Monthly Payments!

Truth: You will pay twice as much for the home. If a loan is issued in May 2020 for $180,000 at 5%, the borrower will have pay the bank back $347,859.84 by June 2050.

Input any mortgage amount in this amortization calculator and see for yourself:

You’ll be a Homeowner!

Truth: 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.

You Can Pay it Off at Any Time! 

Truth: Unfortunately when Americans pay off their mortgage, it’s usually to refinance or buy another home.

You Can Buy Your Dream Home!

Truth: Banks approve borrowers for more than the borrower requested. They want you to buy more home than you need, and borrow more than you can afford. Mortgage origination fees are a multi-billion dollar business and those fees are correlated to the size of the loan. Think. 

You’ll Build Wealth! 

Truth: They like to say: If your rate is 4.5% and you invest in stocks earning 8%, then even while paying off the mortgage, you’ll earn 3.5% on your money!

But the interest rate you pay is guaranteed, the yield on investments is not…..

Payments Decrease Over Time! 

Truth: They say a $1,000 payment is only $750 after 10 years (inflation), and since you’ll earn more in the future, the payments will be a lower % of your total monthly take home.

The reality is wages aren’t going up:

Your Home is a Source of Income! 

Truth: Borrowing against your house (HELOC’s, line of equity, etc.) is like a cash advance on your credit card. And banks love when you refinance because it sets the clock back on payments (you’ll be back to every payment being 99% interest and 1% principle).

Related Reading: Is a 401k Worth It?

Blame the Government for Your Crippling Debt

I want to be clear about something.

I own two real estate properties, and while I didn’t use a 30-mortgage, I did take on some debt.

Debt is a tool, a wonderful one, and there is nothing intrinsically wrong with it.

But the kind of debt The American Dream requires just to be middle class is a crime. 

In 1950, the average annual income was $3,300. The average car cost $1,510, the average house cost $7,354, and annual tuition for college on average was $600. In percentages:

  • Car to income: 45%
  • House to income: 222%
  • Tuition to income: 18%

In 2014, the average annual income was $51,017, average car was $31,252, the average house was $188,900 and annual tuition is $25,000.

  • Car to income: 61%
  • House to income: 370%
  • Tuition to income: 49%

It’s time to wake up.

Stop blindly accepting the 30-year mortgage cultural paradigm and use your head.

Every one of us has the moral obligation in life to align with our souls 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 to fund everyday life, how will we have time to connect with our souls and learn its authentic desires?

In other words, consider a 15-year mortgage.

For a $180,000 loan at 5%, you’ll pay $168k in interest. The same loan for a 15-year mortgage will only cost you $76k in interest payments.

Think of what you could do with that extra money! Maybe start a business? Go on an extended trip abroad? Stay at home with the kids?

It’s sad when people stay at miserable jobs and lead 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?

Related Reading: What is Spiritual Healing?

The American Dream is Dead

The American Dream is dead.

It is a checklist that we are supposed to follow to achieve happiness – except that happiness never seems to come.

A major selling point for The American Dream is the idea that buying a home is a sign of success. And the way to buy a home is to use a 30-year mortgage. The government pushes this paradigm for three reasons:

1) Gross Domestic Product (GDP). The housing industry represents over 11% GDP.  Construction, realtors, architects, movers, financial services, home furnishings, etc. all contribute to the economy.

2) Mortgage-backed securities (Fannie Mae buys mortgages, bundles them to sell to financial firms who sell them to investors) account for $9 trillion of the $14 trillion outstanding mortgages in the country. The government gains a little more power each time someone takes out a mortgage.

3) Mortgage Insurance. Fannie Mae guarantees conforming mortgages because it collects mortgage insurance from its borrowers. This income is how a government agency made $14 billion in revenue in 2019.

The 30-year mortgage has a fantastic advertising campaign that Americans love to believe.

Buy a home if you can afford it, but don’t buy a home because someone else told you it’s a sign of success.

Even if that someone else is your government.

There is no reason why the government needs to be so involved in our housing market. If we could go back to a free market, the banks would have your interest in mind when taking out a loan… because they’d want their money back. 

But a world like today, where free money from the government flows endlessly, no one cares. The bankers don’t care, the investors don’t care, even the borrowers don’t care — the government will bail us out, too, right?

Wrong.

4 Comments

  1. David Pinero David Pinero June 2, 2020

    To see the argument so well spelled out is heartening. But I’ve felt this at an instinctual level most of my adult life, and, admittedly probably for some of the reasons here.

    But for me it’s others. While it’s true banks control the process and thus one can assume the advantage is against buyer is in the little-understood nuances and emotional “crafting” that ensues, there’s a more relatable series of reasons this sort of advantage is exploited and which are readily obvious.

    I liken home ownership to beautiful marriage ceremonies. We all think they are the ideals that all of us are entitled to or are at least not unreasonable to pursue. But these “things” are in fact symbols and ambitions of a smaller elitist class that nonetheless exist as zombie walks within the culture our new permanent lower class.

    The refined pay-for-strict-value job culture does NOT support the 30 year payback vision in any way, shape, or form. It’s hard to imagine anyone starting a job truly believing in its longevity or its rhythm of weekly pay and security that makes taking on such a risk reasonable. There is a small circle of professions and personalities where the odds are better, but certainly not enough to justify this line of ambition. Most people will be hired and will be expended well before their homes are paid for. When it happens, they will find that they need to roam the country for equitable work (thus now bearing the expense of shedding their mortgage deals, or being drowned by them like anchors cast into the ocean with them), which by the way, means starting at the lower end of the salary range, and bearing the crushing adjustment of the value ceiling that probably contributed to them getting laid off or fired in the first place.

    There is no way a home is meant for “you and I” in the sense of regular people. Just like there is no such thing as the beautiful wedding ceremony in a world where real people increasingly decide on veteran lodge halls or the grey corridor of their county licensing offices where a clipboard and a pen seal the deal to a friend with a smartphone camera, maybe.

  2. David Pinero David Pinero June 2, 2020

    To see the argument so well spelled out is heartening. But I’ve felt this at an instinctual level most of my adult life, and, admittedly probably for some of the reasons here.

    But for me it’s others. While it’s true banks control the process and thus one can assume the advantage is against buyer in the little-understood nuances and emotional “crafting” that ensues, there’s a more relatable series of reasons this sort of advantage is exploited and which are readily obvious.

    I liken home ownership to beautiful marriage ceremonies. We all think they are the ideals that all of us are entitled to or are at least not unreasonable to pursue. But these “things” are in fact symbols and ambitions of a smaller elitist class that nonetheless exist as zombie walks within the culture our new permanent lower class.

    The refined pay-for-strict-value job culture does NOT support the 30 year payback vision in any way, shape, or form. It’s hard to imagine anyone starting a job truly believing in its longevity or its rhythm of weekly pay and security that makes taking on such a risk reasonable. There is a small circle of professions and personalities where the odds are better, but certainly not enough to justify this line of ambition. Most people will be hired and will be expended well before their homes are paid for. When it happens, they will find that they need to roam the country for equitable work (thus now bearing the expense of shedding their mortgage deals, or being drowned by them like anchors cast into the ocean with them), which by the way, means starting at the lower end of the salary range, and bearing the crushing adjustment of the value ceiling that probably contributed to them getting laid off or fired in the first place.

    There is no way a home is meant for “you and I” in the sense of regular people. Just like there is no such thing as the beautiful wedding ceremony in a world where real people increasingly decide on veteran lodge halls or the grey corridor of their county licensing offices where a clipboard and a pen seal the deal to a friend with a smartphone camera, maybe.

    • Elizabeth Elizabeth Post author | June 22, 2020

      Permanent lower class, exactly. The 30-year mortgage is a product designed to make the homeowner feel like they are increasing their net worth, when in reality, they are just transferring more money from the lower class of society to the upper class. It’s bizarre, so bizarre, that so many people can review the data, and understand that most their payment is going to the bank and not towards principle — but STILL buy a home using a 30 year mortgage. Goes to show how powerful programming is.

      • truth truth July 8, 2020

        It has nothing to do with “programming” and everything to do with the system being designed to provide you with a limited set of very poor choices. It is designed to transfer wealth and keep people in poverty, and if you bring it to anyone’s attention you are dismissed with a wave of their hand and some snarky comment about how “its just how its done.”

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