FICO to incorporate buy-now-pay-later loans into credit scores

Do you also think that way about buying a house with a mortgage (credit)? I don't.

A mortgage isn't used to make more money. It's used so people can own a house after saving for a few years, rather than waiting until they've saved for a few decades.

Often, a mortgage is either used to make money (from rising house prices) or save money (when the mortgage is cheaper than rent).

You need to compare money paid for mortgage minus price of house against money paid for rent (when you're left with no assets after all the years of paying it).

A mortgage doesn’t make money, but it (can) enable spending less money. If you buy a place such that interest, maintenance, insurance, taxes and the opportunity cost of not being able to easily relocate are less than rent, then you have saved the difference.

It’s also a way to force saving, which is psychologically useful (and thus valuable).

Often, houses are depreciating assets that are expensive to maintain, but people take mortgage and buy them anyway. Often, renting is cheaper than buying, but people buy anyway, because they like the idea of owning their home. Often, people buy a home, because suitable homes are not available to rent.

Money is only a means to an end. It has no inherent value. And very often, the subjective value of a thing is essentially unrelated to the monetary value.

I do. Housing prices are constantly rising, when you take a loan you are buying an asset which (with some luck) may appreciate in value more than mortgage interest rates. That's why in some countries it's worth taking a loan as soon as possible without saving for too long.

Sure, without mortgage you may not be able to afford a house at all but it does not change the fact that mortgage is a "good" loan (i.e. you benefit from taking it)

Mortgages with low interest rates are also one of the (main) reasons houses are so "expensive" in the first place.

The cheaper money (credit) is, the "higher" the prices will go.

It's not so much that houses became expensive, it's more that money to buy a house (specifically mortgages) became relatively cheaper. Low interest rates did that.

This is a one-time effect, though. Or at least, an effect that only changes periodically (and should reverse) when interest rates change. 30-year mortgages have been standard in the US for most of my life, and houses have gotten a lot more expensive during that time.

> Housing prices are constantly rising

Housing prices are _generally_ rising. It's entirely possible to buy a house and wind up selling it later, having lost money in it. Many times through no real fault.

- They’re giving you a line of credit, money you don’t have, to buy a house.

- Why else would mortgage loans ave percentage rates if not to make money off lending you money?

Yes, though I’d add that a house is generally viewed as an investment, unlike something like a car, which typically depreciates in value.

In addition, you get countries like the UK where renting is very precarious. You might be forced to move every year, after a year your landlord can turf you out with only a few months' notice, you aren't allowed to modify the house in any way even putting a picture-hook into the wall or redecorating a room, etc. Since most people cannot afford to buy a house outright, a mortgage is necessary to avoid this.

The parent comment was about how you should only take loans if you expect a return on the investment greater than the interest. Not about the bank.

I think you've misread. The thread is about consumers of credit using it to make themselves money.

House size, build "quality" (the details in the house), resource scarcity, and zoning policy are the drivers of cost. Cheap credit and lifetime loans allow the system to continue.

Mortgage loans have been getting cheaper due to automation and the commoditization of loans / increase in surplus capital.

That then pushes up home prices over time relative to inflation.

The effect may pause when interest rates change, but it's unlikely to reverse significantly. People who have homes now aren't going to want to sell for less than they paid for them, so there's a lot of inertia against prices going down.

I bought a house when I did because the interest on a mortgage was lower than any reasonable prediction fir inflation, which seemed a lot like free money; but at the time it felt a lot more like a dirty hack taking advantage of terrible government policy than any idealistic system where credit is used to bootstrap productive capitalization.

Low interest rates tend to just push housing prices up. The average expenditure on housing as a percent of income have been nearly constant in the US for 50 years.

Every time a municipality levies a requirement upon new development the price of everything that could be used the same way goes up by that amount since it's the "next best thing". I got told I need to spend $20-50k on engineered assessments and plans to clear an old farm field that was left to grown over for 30yr and is now considered "forest" by (a single unelected employee of) the municipality.

Game out the economic implications of that sort of regulatory behavior across the entire real estate and housing sectors and suddenly a lot of stuff that makes no sense makes a lot more sense.

> Housing prices are constantly rising

Housing prices typically appreciate up with inflation over the long run, although local markets don't always follow the same pattern. (IE, Silicon Valley is a case where real estate appreciated faster than inflation.)

Remember, it's over the long run. There can be periods where a house will appreciate faster than inflation, and other periods where the real value of a house doesn't keep up. If you understand this dynamic, you can make a lot of money. (IE, flipping and then becoming a landlord when the market turns.)

If you buy a house for 500k on a 5% mortgage over 25 years when you are 25, and you plan to live until you are 85, you will live there for 60 years.

It will cost you 35k a year for 25 years, or 875k a year

After 25 years you have no more expenses.

If instead you rent it for 20k a year, increasing with 2% inflation each year, by year 25 you're paying 33k a year in rent, and by year 60 you're paying 66k a year.

Over 60 years you pay 2.4m in rent, or 900k in mortgage (you could also then sell that house for 1.6m with a 2% annual inflation).

You'd have to invest the savings and get way higher than inflation returns to break even.

Of course there's maintenance costs of the house too, but that's with rent far cheaper than the mortgage. In reality rent tends to be a similar amount as a mortgage (in the UK it tends to be higher - as people won't rent places out if they aren't covering their mortgage - at the very least the interest part of it). You'll likely find house prices appreciating more than inflation too - just like stock prices do. Rent tends to track income.

Now you could argue that you'll get more by investing in high return growth stocks. And you might be right. In the 80s there was a whole "endownment" mortgage craze where you paid the interest on the mortgage, and then the rest rather than paying down the mortgage capital, instead was invested.

This was a massive scandal as many investments didn't have enough to cover the mortgage amount upon maturity. With a mortgage you know that no matter what happens with inflation, growth, returns, stock crashes etc, you will own one house after X years.

The home ownership rate in the USA is 65%. If house prices start going down, money will be printed until they start going back up.

> You'd have to invest the savings and get way higher than inflation returns to break even.

You say that like it's a difficult thing to do.

S&P500 is up 710% since 1996. Gold is up 92% since 2012.

Personally, the rent control is the best part of a mortgage and even though renting is typically better, I'm fine paying a premium for that. That said, good luck getting somebody to loan you 900k so you can play the stock market; it's much easier to get that for a house though.

Shelter (and, for many, transportation) are a need for maintaining their ability to make money. As such there is some minimum amount that must be spent on these, and loans costing up to that amount can be seen as ways of making money. Most people who make these purchases do buy even more than strictly necessary, and the extra spent above the strictly necessary line should be seen as luxury expenses.

General advice for homes leads to buying a home that does follow the logic, given historic movement of home prices and rental prices. It rarely is put in those terms, but works. For vehicles, the financial recommendation generally is to buy less car as it is a depreciating asset. If you have cash for a luxury expense, then it is no different from any other large luxury purchase, but if you have to finance, go as cheap as possible (but making sure to account for the repair costs, fuel usage, and such, not just the initial cost and loan payments).

I hope most people haven't forgotten about 2008 financial crisis and how it was caused by declining housing prices (and the banks/markets not taking that risk into account)

Of course they make money — but they take on no real risk. The home owner (who is taking on the risk) likely stands to make much more money than the lender in appreciation.

(Never mind the homeowner has to live somewhere regardless — and anywhere but mom's basement [1] is going to charge rent which would, by comparison, be throwing money away.)

[1] Okay, my mom charged me rent to live in her basement when I was 19 or 20 and needed a place over the summer.

>After 25 years you have no more expenses.

After 25-50yr (depending a lot on macroeconomic factors and your specific municipality) property taxes will likely be comparable to your mortgage payment.

We do. And we remember the rebound some years later and are still kicking ourselves for having not scooped up real estate fire-sales in Las Vegas.

I mean, hypothetically. Some people. Might be kicking themselves.

Since the not-yet-homeowner is no doubt paying rent, home appreciation can slip by some measure below the rate of inflation and still have been a wise investment.

Of course there is home insurance and repairs to consider. But also there is the increase in rent to consider on the other side as well.

You can believe that if you like of course, but I am definitely not teaching my children that.

Renting cheaper than owning sounds like a very short-term view.

My dad explained to me the nice thing about a 30 year fixed mortgage in simple terms: 10, 20, up to 30 years later ... your "rent" is the same.

It's a simple experiment to see what a person's rent was going for 30 years ago in your community and then see what a person with a typical 30-year mortgage would have paid each month 30 years ago. Because one of those two is still paying the same monthly amount today and about to have an asset they can pass along to their kids or spouse (or cash-out if they want to retire to live in a trailer in Eloy, Arizona).

There are maintenance requirements to home ownership, absolutely. And some are not cheap.

But there is absolutely a segment on HN who will act like home ownership is nothing more than pulling out a card for the next four digit expense every month or more.

“What are you going to do when (not if) you hot water dies? And then you need a roof? Oops your house needs painting and new appliances and now the AC is gone too, what about pest control, and hopefully your sewer line doesn’t collapse? Can’t handle all that happening to you? Can you realllly afford a house then?”

No more expenses... Right!

No property tax. No homeowner's insurance. No maintenance. Just living on easy street.

> Gold is up 92% since 2012.

And housing is up 125% since 2012, so the sucker who bought gold instead of a house has lost out.

We can all be rich in hindsight.

(There's also other benefits to owning - like being able to have pets, not being able to be evicted, etc)

But the biggest tell that housing is valuable is that nobody is spending $500k on housing to rent it out if they could make more money pumping $500k into the stock market.

It seems unlikely you'd be able to rent somewhere for less than the cost of

* maintenence

* taxes

* return on capital

Because otherwise your landlord is subsidising you, and why would they do that?

There are plenty of places where many people can afford market-rate rentals, while there is nothing they can afford to buy. That includes some major cities, where land is inherently scarce, as well as other desirable locations, where the locals have chosen to ban sufficient housing.

Rents are ultimately based on what people can afford to pay. Home prices, on the other hand, also reflect the viability of the home as an investment. If the market believes that housing will not become more affordable in the foreseeable future, homes in that area are low-risk investments, and investors will accept lower returns for their money. Home prices grow very high relative to rents. Taking a mortgage to buy then becomes the financial equivalent of taking a loan and putting the money in a savings account.

The city where I live in California is one of those places. Before Covid, home prices were high but tolerable. Then the prices jumped due to WFH, while rents grew at a much slower pace. And then interest rates went up without making a dent in home prices, making homes too expensive for those poor enough to need a substantial mortgage.

You should look into how many homes are being purchased primarily for AirBNB/VRBO type income streams...

I don't know about this - when I see quotes on build cost in my area they add up to more than similar properties sell for in some cases, and generally aren't a whole lot different than buying to the point that I've wondered why it's like that.

Rental prices are connected to costs, but not tightly.

If I'm a landlord and my costs are $X, but I can find renters for $2X, I'm probably going to charge closer to $2X.

If my costs are $X, but I can only charge $0.9X, I'll most likely rent it for that, because losing $0.1X is better than losing $X; unless I own a lot of units and it makes more sense to push the 'average rent' up, even if it means more vacancies. If the market conditions are like that for a while, I'll probably try to sell, but I'll take the loss for a while.

Additionally, if local market conditions include something like California Prop 13, a landlord that has been holding property since before I was born most likely has a much lower property tax bill than if I purchase a similar property. In that case, renting could supply them with a nice return and me with a nice discount.

Property taxes tend to go up with inflation though, so while the numbers given are wrong, the point still stands.

NYTimes has a great calculator for doing just that https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

People forget that houses tend to get bigger when people can afford it. Adam Smith observed this back in his famous book.

NYTimes publishes a fantastic calculator [0] to help make this kind of rent vs. buy decision. It's not always that clear cut.

[0] https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

Depends on how long the not yet homeowener will live there. If you live in the same house for the next 40 years you are almost certainly better off owning it. However if you have to move after a year (which might not be in your control) you probably will lose money. 7 years is a good rule of thumb for minimum time you need to live in a house before it is better than renting, but exact circumstances can be very different.

If you put around 200-300k into IBKR (not affiliated) you can get portfolio margin which will give you just shy of $2,000,000 in buying power. Access to leverage isn’t really an issue, but forced liquidation definitely is. The bank will not liquidate your mortgage if you end up underwater.

Yeah forced liquidation is a big problem for a long-term loan.

IIUC, Musk et al take loans at 25% of their share's value to avoid this ever coming up.

Also the average house price is 500k in the US so a 20% downpayment (which not everybody does) is still less than 200k.

> people won't rent places out if they aren't covering their mortgage

btw this is usually false, and mostly irrational.

1. Realize that every landlord has a different capitalization structure. Many likely bought decades ago and thus only owe a fraction of what the current market selling price is. Additionally we also have had a long period of ultra low interest rates so their interest rate is different than what new entrants are paying. Because their capital cost is lower they can actually offer for far less than the (Interest+Taxes+Insurance+Maintenance) costs that a home owner would have to bear.

2. The rational move of a landlord is to price competitively based on what the market can bear, even possibly losing a little money per month in cashflow (but less bad than the appreciation rate and cost of disposal/selling/defaulting).

> Renting cheaper than owning sounds like a very short-term view.

That highly depends on where you live. In some countries/cities, buying really makes no sense both short and long term. In others, it absolutely might.

> Because otherwise your landlord is subsidising you, and why would they do that?

Because they may have capitalized decades ago and the market only bears a certain price. They're not subsidizing you because their cashflow needs are actually lower than new entrants.

> But the biggest tell that housing is valuable is that nobody is spending $500k on housing to rent it out if they could make more money pumping $500k into the stock market.

Of course they are. I do. I do so knowing full well that my expected returns are going to be nowhere near my brokerage account invested in public equities. The past decade has followed that expectation.

I and many others do it as a form of diversification. It’s risk aversion in the end. Most people with capital don’t want to be putting all their eggs into one basket, so for wealth preservation and diversified income streams it’s a good option even knowing up front you are expected to lose money via opportunity cost.

That ignores other benefits of housing being a privileged investment category by the current government and monetary/tax policy. If you seek cheap leverage this is probably one of your few options as a “two bit” player in the market at that $500k level.

> It will cost you 35k a year

> If instead you rent it for 20k a year

Some good numbers, but what is missing is the result of investing $35k-$20k=$15k per year. Let's say you earn a %7 real return on $15k/year invested for 60-25=35 years.

Writing a little program:

    import core.stdc.stdio;
    void main() {
        double d = 0;
        foreach (i; 0..35)
            d = (d+15000)*1.07;
        printf("d: $%f\n", d);
    }

Yields $2,218,701

I would think twice about buying real estate as an investment.

Personally, I own my home because I want to use it as I see fit, but I recognize that as an investment it's a lousy one.

> and mostly irrational

I'd say it is quite rational. Real estate represents value, and value should be earning at all times. Owning it free and clear does not change that one iota. Rents are based on the value of the property, not the mortgage on it.

somehow, I never learned to use a spreadsheet

You can use a rent vs buy calculator to do the math for your situation: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

The parent is minimizing a bunch of coats of owning: maintenance, property tax, included utilities, HOAs, and most importantly opportunity cost.

https://www.npr.org/sections/money/2010/11/05/131105373/the-... I still remember an old Planet Money podcast they did covering a Rent or Buy calculator, It didn't allow for the possibility that the value of a house might fall over time. If you put a negative appreciation rate it would spit out an error. Which in the immediate aftermath of 2007 meant the tool was unable to capture reality.

False, rents are based on what the market will bear. The value of the property is stickier than rents.

Plus one can be "losing money" on cashflow but earning money in equity, so one can rent for less than the mortgage while the value of the asset is rising even faster than the monthly loss. Of course this only happens based on speculation and having free cash to "lose" monthly.

Home prices have doubled in most areas since 2009 (and worse in many areas.) when people complain about prices in 2025, this is what they’re talking about. This is not driven by the novel existence of 30-year mortgages and interest rates are at a near-term high.

> rents are based on what the market will bear

And that is the value of the property. I.e. the value of property is what income it will generate.

When those two values diverge, then "arbitrage" steps in which converges them again.

25 years ago, I sold my previous house. It recently sold for 4x what I sold it for, a 300% ROI. Was selling it a financial mistake?

Consider that I didn't pay property taxes, insurance, maintenance, and squatter eviction costs for the last 25 years.

Consider that the S&P500 went up 561%.

Buying a house is not a good wealth builder strategy.

Half of that is inflation. Most of what remains is the anomaly in housing prices in 2009 https://fred.stlouisfed.org/series/MSPUS

Inflation adjusted median US home prices Q4 2024 where 419,300 vs Q4 2006 ~382,00 that isn’t flat but the difference is far less interesting.

Can’t argue with the math but one thing about a mortgage is it takes no effort. Just pay the bill and time does the rest. With stock investment there’s an emotional attachment to every major swing, should you buy or should you sell is never far from your thoughts. Using a home as an investment may not make the most return but it’s easy as long as you can pay the bill.

Yes but I get to keep the equity in the house. I don't keep anything I pay towards interest.

Real estate prices swing around, wax and wane, just like the stock market does. It's just that there is no real estate price ticker.

Investing in the S&P 500 is even less effort. The last time I bought a house, I had to carefully read and sign about 50 pages of legal papers. Buying stocks is just pushing a button.

Huh? I invest tens of thousands a year into stocks and have never once thought should I buy or sell. I just auto buy weekly, it couldn't be easier and I never think about it at all. They even have funds that automatically re-balance as you approach retirement.

Also you are acting like the housing market can't also crash.

But owning a house has other costs that owning gold doesn't.

Are you factoring in property taxes, maintenance costs, utility costs, insurance, etc?

In places like the Bay Area, property values pretty much never go down in price, and the YoY relative increase is on par with that of index funds. Combine that with rental income, and you can very likely beat an index fund. Mortgages offer much more leverage than margin loans, which helps offset the upfront capital cost.

For decades, property values kept going up in Detroit until they didn't.

not just Detroit…

The value of real estate in Detroit was tied to the auto industry. When it fell, so did real estate prices. The Bay Area's value does come in large part from the tech industry, but it's also a very important port of entry for trans-Pacific immigration and commerce, and that's a lot less likely to change IMO.

But that's beside the point. Substitute Bay Area with Seattle, Los Angeles, Manhattan, or some other area of your choice. Or, better yet, diversify your portfolio by buying real estate in multiple cities. The same options that are available in the stock investment to tune your risk profile are available in real estate investment as well.

I would use the long-run return on housing: the same as inflation.

Median home prices aren’t very interesting because most of the increase is limited to specific competitive areas, and median US home prices hides that effect. I’m sure houses in deeply rural areas haven’t gotten much more expensive, but it isn’t relevant to me.

Well over half of Americans are living in Urban areas so median here is a measure of urban home prices.

Further average home prices reflects overall economic gains. The top 10%, 1%, 0.1%, etc getting richer buy nicer stuff driving up the average but that says little about overall affordability.