My wife and I bought our first home in Fairfield CT back in 1966 for $21,000. It certainly was not affordable for us. I was 27 years old and my salary as an Assistant Professor at a small Catholic college was only about $6500 per year, or about $540 per month. My wife, an RN, could not work because our second child had been born six months before.
Indeed, only a gift of $2000 from my father enabled us to come up with the down payment, and somehow a local bank approved us for a $19,000, 30-year mortgage to cover the balance of the purchase price. We had no choice. No mortgage, no home.
Actually, it turned out to be a no-brainer. The monthly mortgage payment, with taxes and insurance, was about what we had been previously paying for rent, but now we had a home of our own to live in and care for.
I did not realize it at the time but in taking on a mortgage loan we had entered into a partnership with the bank. We really were joint owners of the property. What were the terms of the partnership? The bank put up the capital and required us to make monthly payments of principal and interest. We were also responsible for paying for homeowner’s insurance and local property taxes that the bank conveniently lumped into the monthly mortgage payment. Any improvements or repairs would be our responsibility.
Initially, it seemed that the capitalist bank got the most out of the partnership, but as time went by, it turned out to be a great deal for us. Twelve years later our family had grown, and I had had a career change that was turning out well, and so we decided to buy a larger home. We sold our house for about $80,000, paid back the remaining principal, that was probably still around $17,000, to our bank partner, and pocketed about $60,000, a substantial increase in equity over our original $2000 down payment.
Most of that equity went as a down payment on a larger home nearby that cost about $90,000. Now we had a new bank partner, another friendly capitalist institution that was willing to invest in us and our property. The terms of the partnership were much the same.
Thirty years later with our six children grown we sold that house for about $500,000 and downsized to a small ranch house that would be more suitable for an older couple. Even though all those years had gone by, there was still a large principal balance on my mortgage because I had refinanced a couple of times as the house increased in value to help put our children through college.
Although still nearby, the ranch house was in a better neighborhood and cost about $600,000. Even though I was about to retire, we still had a mortgage of about $250,000 and will probably continue this latest partnership with a bank until death or illness forces us to sell. I still see no reason to pay it off. Taxes and insurance costs keep rising, but our monthly housing cost is comparable to current rental rates in Fairfield.
Looking back now I still believe that our experience with capitalism was a positive one. The banks lent us their depositor’s money, and we never missed a payment. We labored to take care of the property and maintain its value. In the process the bank got its principal back with interest, and we were able to increase our equity. Both sides in the partnership profited. We were not alone. I suspect that home ownership is more widespread in the United States than anywhere else in the world. ###
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