Thanks for the replies.
Pacman and Cornwell: agreed - there is/may be a "quality of life" consideration with a rental. It certainly doesn't feel as good to rent. Ya feel kinda naked!
Cornwell: I'm with you on house prices, but I'm trying to leave that out as I don't want to speculate on where they are going.
Art: The prices I am using are purely hypothetical chosen as to be "round" and easy to work with. I'm assuming that for a choice in rent vs buy, you can get comparable places for the same monthly payment (rent or buy). The investment portion when you are renting comes only from the would-be down payment, and then each year you put in what you would pay in taxes+insurance. Those are the hidden costs I am realizing are very significant. Those costs, and the huge portion of your mortgage that goes to interest for the first 10, even 20, years, I'm realizing are huge. As I mentioned earlier, it's not until year 21 of a 30yr fixed mortgage that more than half of your monthly payment goes towards your principal. In the first 10 years, you're paying very little in principal - and in the first 5, it's almost all interest.
TheRock: Agreed that the house will be worth more by the time you pay it off. It could be a lot more, but I found through my research this wekend that between 1945 and 2000, home prices - an average - only kept up with inflation. When you adjust for inflation you about made even in the value of your home from 1970 to 2000. (From 1945 to 2000, you actually lost a little money, or "buying power".) Put simply, in 1970 you could have taken $100k and bought about the same amount of, say, groceries as you could have if you spent the $100k on a house, held on to it to until 2000, sold it, and bought the groceries then. And obviously, you could only buy the same amount of house in 1970 as 2000: the "value" in dollars of your house went up, but the cost of every other house went up the same amount. This run-up in prices over the last 6-7years could buy you more groceries than in 2000, but still the same amount of house.
TheRock again: Agreed that by year 20 you'll be paying less in mortgage and paying off your house very quickly by then. Of course, you can't move at any point, b/c then you have to start over with a new mortgage and paying mostly interest for 10years. and if you move every 5-10 years, it'll take more than a lifetime to pay off a mortgage using a traditional 30yr fixed and not pre-paying.
JoseBach: Rent does go up - less than inflation (and a lot less than house prices of late), I was surprised to find out - but that's definitely a consideration. Your rent will not be under your control - you give that up.
I'm going to drill on this topic much longer - and again, I appreciate all the input - but there's no fantasy stats to check to day, so I thought I'd share a quick calculation I made today... Hypothetically, if I assume that I can get the "same amount of house" (not necessarily true in all places, and this leaves out the "piece of mind" etc of being an owner) for monthly rent as I could with a monthly mortgage payment, on a $400k property. If I bought, I put the traditional 20% down and get a 30yr fixed at 6.5% interest - I'm also on the hook for yearly taxes and insurance. If I rent, I pay the monthly rent, though don't pay a downpayment and no insurance+taxes -- instead, I invest the would-be downpayment right away, and the tax/insurance money yearly (when I'd otherwise pay the ins/tax if I owned). Now I look at what I spent and what I got over 30 years:
> $728,146 in mortgage payments (over $408k in interest)
> $80,000 downpayment
> $240,000 in taxes (this can be different, but I pay ~2% of home value per year, so ~$8000/yr)
> subtotal: $1,048,146
> saved in income taxes by deducting interest: ~ $55,000 (that is, above the standard deduction; calculated for at 30% bracket)
TOTAL SPENT: ~$993,000
what I'd have after 30yrs:
> a 30yr old house which has probably gone up in value, but I've likely put (or need to put) a lot of money into for repairs etc... let's say it's worth $1million.
>$728,146 in rent
> $80000 ("would-be" downpayment) invested in stocks
> $240,000 ("would-be" taxes) invested in stocks ($8000 per year)
TOTAL SPENT: $1,048,146
what I'd have after 30yrs:
$1,417,153 in a stock portfolio (assume 7%/yr return), less 15% in cap gains tax, and I'm at ~$1.2mil. (this even after I "threw away" over $720k in rent...)
Lots of assumptions up there, I admit - who knows exactly what your house will be worth and what expenses will be incurred over a 30yr period? Before this huge run-up since 2000, homes were appreciating around 3-4% per year - that over 30yrs would put the $400k home at ~$1-1.2mil. But then, who's to say I'll earn 7% per year in stocks? No idea, but if you put money into the S&P 30yrs ago, you got about 10.3% per year. (That would make my "rent" stock portfolio worth over $3mil.) In short, I think neither estimate/assumption is very skewed - if anything, assuming a 4% annual appreciation after this run-up in home prices is optimistic. This in my opinion (but I'm trying to stay away from my opinion on this!).
I'm also assuming my rent doesn't go up - which it will. and I'm assuming interest rates don't go up, which they may.
Another huge assumption is that you stay in that same mortgage for 30yrs. If you don't, and move every 5 years and start a new 30yr fixed every time, you'll only be paying off about 6% of your principal every 5 years.... and it'll take you nearly 100 years to pay it off and you'll have paid interest in the neighborhood of $1.5mil or more. That's what can really get you. (and why you should pre-pay if you are going to do a mortgage.)
One last thing, yes, after you pay off your house, you'll not have to pay monthly mortgage payments any longer - but you do still have to pay taxes and insurance. and after the house is paid off, if I rented, I'd still be paying rent, right? Maybe, or, I just take my $1.2mil (likely more) and buy the house...
Anyhow - this wound up being a lot longer than I had planned - but in the end, I've come to the conclusion that buying with a mortgage is not the "slam-dunk" it's made out to be. The hidden costs of insurance/taxes and front-end interest, plus the cost of having your money locked into your home when it could be doing better elsewhere, levels the playing field quite a bit, imo.