Mortgaging in your 20s: Owning a home by 45 or 30 years of debt
Mortgaging in your 20s allows owning a home by 45, contrasting with 0% real housing yield and 6.6% stock market returns over the long term.
English · Original discussion in Spanish · Published
Paying 500 euros a month for life: The cost of mortgaging young
A 20-year-old earning 1,000 euros faces two identical bills: 500 euros monthly for a mortgage or 500 euros for rent. In both cases, there is barely enough to survive on water and rice. What changes is what happens next, and nearly two and a half years of debate have not produced a consensus.
The starting thesis is harsh: borrowing for decades for overpriced basements, with interest rates deemed usurious, would be the worst financial decision young people make. Every square centimeter bought is money down the drain. The most repeated response to this premise is the opposite and fits in one line: given the circumstances, it is the best thing one can do.
Is it better to buy a home or pay rent?
The most cited comparison puts 500 euros of mortgage against 500 euros of rent, leaving the balance tied. The nuance that breaks it is the passage of time: a fixed-rate loan payment does not move, while rent is revised —with a 2% annual cap in the proposed scenario— and salary, however imperfectly, eventually trinc inflation. After ten years, those 500 euros of mortgage may represent a third of the paycheck. Rents that cost 500 euros fifteen years ago now range between 800 and 1,000 depending on the area.
There is another way to look at it. Someone signing a mortgage assumes an obligation that does not disappear if they lose their job, and the salaried worker with an average paycheck is exposed to any dismissal: debt does not care about streaks. The loan turns working life into a sentence dragged until age 60 or 65, when it finally closes. By then, one intervention points out, the body has already paid the bill.
What is the real yield of housing compared to the stock market?
The most repeated quantitative argument comes from data collected by economist Jeremy Siegel in Stocks for the Long Run. Adjusted for inflation, the real yield of housing tends to zero once the effect of the 2008 bubble is removed, while stock yields stand at 6.6% annually. Unproductive asset versus productive asset: the productive one wins.
With 40,000 euros invested at age 36 and a real yield of 2% —stocks minus inflation—, the capital appreciates for three decades and then begins to pay a rent of 1,000 euros monthly until age 84. The full breakdown, item by item, is one of the exercises that has circulated most in the discussion, and its result does not invite cheering. The fine print depends on the starting point of the series: it is not the same to start in 1945 as during the industrial revolution. Gold, by the way, does not fare well either.
How many years should a mortgage last to avoid ruin?
Here the range is wide. Some argue that any mortgage over 15 years is unviable, while others recall that most loans are signed precisely this way, for 25 or 30 years, and end up being paid. The legal assumption cited for buyer credits contemplates a 15-year term, with two years of grace and thirteen annual payments.
The other factor is the rate. Contracting a fixed rate in the band of 1.25% to 1.60% completely changes the equation: those who secured it can extend the term without interest devouring the operation. Giving up 10,000 euros in interest savings over 30 years in exchange for a more comfortable payment seems like a bad deal to many eyes. And those who clear it in four or ten years, amortizing capital, emerge with equity and without the noose around their neck.
Buy to rent: 138,000 euros plus renovation for 850 monthly
A specific case put on the table: a property acquired for 138,000 euros plus 20,000 for renovation that is rented for 850 euros monthly. With these numbers, the rent covers the payment and the owner accumulates an asset that can be sold, rented, or inhabited. The same property would be rented without problem for 1,000 euros in the area, pushing the price for the next tenant.
The floor of the market is increasingly marked by large companies. Where a private individual once bid, companies capable of paying whatever is necessary and waiting the necessary time now buy. This turns the market into something else: it is no longer a bubble about to burst, but a floor sustained by the financial capacity of the buyer.
Why do 2008 young people not want to repeat the mistake?
Those who bought at the peak of the bubble and have been paying for an overvalued home since then are the ghost haunting the conversation. There are testimonials that play in favor of buying: someone who acquired through a cooperative, with a 20% down payment and sufficient salary for the payment, has seen how the paid apartment now costs double what it cost them. And those who mortgaged at 20 were able to clear it by 45.
On the other side, lifelong renting also takes its toll: reaching retirement paying 800 euros monthly with a pension of 1,300 is a scenario no one signs up for. And even with the house paid, the uncomfortable question looms of someone who discovers at fifty that they no longer want to live in the neighborhood where they bought at twenty-five. A paid house ceases to be equity if no one wants to inhabit it.
In the end, the discussion gets stuck at a point that numbers do not resolve. Housing appreciates or not depending on the series chosen, rent goes up or down depending on the city, and salary holds or not depending on the sector. Buying for 20,000 euros and buying for 500,000 are not the same decision, and no one has yet formulated a rule that serves both cases.
A 20-year-old earning 1,000 euros faces two identical bills: 500 euros monthly for a mortgage or 500 euros for rent. In both cases, there is barely enough to survive on water and rice. What changes is what happens next, and nearly two and a half years of debate have not produced a consensus.
The starting thesis is harsh: borrowing for decades for overpriced basements, with interest rates deemed usurious, would be the worst financial decision young people make. Every square centimeter bought is money down the drain. The most repeated response to this premise is the opposite and fits in one line: given the circumstances, it is the best thing one can do.
Is it better to buy a home or pay rent?
The most cited comparison puts 500 euros of mortgage against 500 euros of rent, leaving the balance tied. The nuance that breaks it is the passage of time: a fixed-rate loan payment does not move, while rent is revised —with a 2% annual cap in the proposed scenario— and salary, however imperfectly, eventually trinc inflation. After ten years, those 500 euros of mortgage may represent a third of the paycheck. Rents that cost 500 euros fifteen years ago now range between 800 and 1,000 depending on the area.
There is another way to look at it. Someone signing a mortgage assumes an obligation that does not disappear if they lose their job, and the salaried worker with an average paycheck is exposed to any dismissal: debt does not care about streaks. The loan turns working life into a sentence dragged until age 60 or 65, when it finally closes. By then, one intervention points out, the body has already paid the bill.
What is the real yield of housing compared to the stock market?
The most repeated quantitative argument comes from data collected by economist Jeremy Siegel in Stocks for the Long Run. Adjusted for inflation, the real yield of housing tends to zero once the effect of the 2008 bubble is removed, while stock yields stand at 6.6% annually. Unproductive asset versus productive asset: the productive one wins.
With 40,000 euros invested at age 36 and a real yield of 2% —stocks minus inflation—, the capital appreciates for three decades and then begins to pay a rent of 1,000 euros monthly until age 84. The full breakdown, item by item, is one of the exercises that has circulated most in the discussion, and its result does not invite cheering. The fine print depends on the starting point of the series: it is not the same to start in 1945 as during the industrial revolution. Gold, by the way, does not fare well either.
How many years should a mortgage last to avoid ruin?
Here the range is wide. Some argue that any mortgage over 15 years is unviable, while others recall that most loans are signed precisely this way, for 25 or 30 years, and end up being paid. The legal assumption cited for buyer credits contemplates a 15-year term, with two years of grace and thirteen annual payments.
The other factor is the rate. Contracting a fixed rate in the band of 1.25% to 1.60% completely changes the equation: those who secured it can extend the term without interest devouring the operation. Giving up 10,000 euros in interest savings over 30 years in exchange for a more comfortable payment seems like a bad deal to many eyes. And those who clear it in four or ten years, amortizing capital, emerge with equity and without the noose around their neck.
Buy to rent: 138,000 euros plus renovation for 850 monthly
A specific case put on the table: a property acquired for 138,000 euros plus 20,000 for renovation that is rented for 850 euros monthly. With these numbers, the rent covers the payment and the owner accumulates an asset that can be sold, rented, or inhabited. The same property would be rented without problem for 1,000 euros in the area, pushing the price for the next tenant.
The floor of the market is increasingly marked by large companies. Where a private individual once bid, companies capable of paying whatever is necessary and waiting the necessary time now buy. This turns the market into something else: it is no longer a bubble about to burst, but a floor sustained by the financial capacity of the buyer.
Why do 2008 young people not want to repeat the mistake?
Those who bought at the peak of the bubble and have been paying for an overvalued home since then are the ghost haunting the conversation. There are testimonials that play in favor of buying: someone who acquired through a cooperative, with a 20% down payment and sufficient salary for the payment, has seen how the paid apartment now costs double what it cost them. And those who mortgaged at 20 were able to clear it by 45.
On the other side, lifelong renting also takes its toll: reaching retirement paying 800 euros monthly with a pension of 1,300 is a scenario no one signs up for. And even with the house paid, the uncomfortable question looms of someone who discovers at fifty that they no longer want to live in the neighborhood where they bought at twenty-five. A paid house ceases to be equity if no one wants to inhabit it.
In the end, the discussion gets stuck at a point that numbers do not resolve. Housing appreciates or not depending on the series chosen, rent goes up or down depending on the city, and salary holds or not depending on the sector. Buying for 20,000 euros and buying for 500,000 are not the same decision, and no one has yet formulated a rule that serves both cases.
Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (214 replies).
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