Ramit Sethi Shares Why Home Equity Is Overrated
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Financial personality Ramit Sethi recently mentioned that some people question how he can be the “I Will Teach You To Be Rich” guy if he rents instead of owning a home. However, Sethi has run the numbers several times and continues to demonstrate how it can be more expensive to own a home than to rent one.
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He elaborated further by stating that home equity is overrated. It’s one of the common reasons why people become homeowners, but a deeper look at how mortgages work, phantom costs, and other details paints a less optimistic picture for owning a home as an investment.
“The housing market is quietly bankrupting millions of Americans,” he said.
Sethi made several great points when arguing that home equity is overrated.
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Sethi quickly claims that homeownership can turn into a financial trap in his video. He mentions phantom costs like property taxes, maintenance, property repairs, and home insurance that make owning a home more expensive than people expect.
He also explained that a mortgage can psychologically weigh on a lot of people who don’t like being in debt. Renting doesn’t have that same amount of stress. He also mentioned a story of someone who has to allocate 55% of their monthly pay toward their mortgage and has to repair a roof.
That’s a realistic scenario that can catch a lot of people off guard. If you’re in debt with other financial products, such as auto loans and credit card debt, it’s easier to remain house poor and fall behind on financial obligations.
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Mortgages have low interest rates compared to credit card debt and other unsecured loans. However, mortgages are also amortized, which means almost all of your early payments are going toward interest. You’re barely building home equity for the first 15-20 years of homeownership with your monthly mortgage payments.
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