Post # 1
So we aren’t ready to buy a home yet but I can go a little crazy with planning for the future sometimes. So I was looking into homes and how much our monthly payment would be, how much we can save up for a down payment, how much our mortgage would be and gah! We’ll be spending more in interest than the loan is worth on a 30 year loan! It’s ridiculous and scary.
Post # 3
Unfortunately, this is the cost of borrowing money for 30 years….
The good news is that your interest is tax deductible, so you end up getting about 25% of it back depending on your tax bracket.
Also, it’s better than the alternative….renting and having 100% of your payment go to someone else instead of just the interest.
Lastly, paying cash for a house to avoid interest isn’t always such a good idea. Say on average the return on cash when invested is 6%. If you put that cash towards a mortgage with 5% interest instead, you are only saving 5% (minus the tax deduction), so you are essentially making less return on investment than if you kept that cash invested and took out a mortgage.
Additionally, putting cash towards a house makes it non-liquid, meaning that if you needed it quickly, it would be difficult to get (you’d have to either refinance or sell). Therefore, it’s not always the best financial decision unless you have lots of additional liquid investments.
Post # 4
@CanAmBride: I just learned so much through your reply! Thanks for the info.
Post # 5
good news is that interest rates are at an all time low right now. We are currently in escrow on a house and got an interst rate of 3.25%! You just can’t get too caught up on the details, otherwise you’ll drive yourself crazy.
Post # 6
Just imagine how much MORE you’d be paying in interest if the rates weren’t incredibly low like they are now. It’s a great time to buy! You can also pay extra toward your principle each month to help with all that interest 🙂
Post # 7
We pay extra toward our principal every month for this exact reason. We went with the 30-yr just in case, but we’re hoping to have it all paid off by the 5-yr mark by living off of DH’s salary and putting mine straight toward the mortgage (which will leave us paying MUCH less in interest!).
Regardless, it’s still a better deal than throwing away money on rent!
Post # 8
A ten year amortization is “ideal” but try to get to 20 years, max. Alternatively, get one with lots of flexibility and put as much extra in as you can. For my neighbours, putting an extra $50/month toward their mortgage took it from a 35 year down to a 30! (You can no longer get 35 years here… basically paying interest only for 5 years… why would you want to anyway?! The cost per month difference is negligible, sometimes only $20!)
For some inspiration, find one of those amortization graphs that shows you how much of the payment goes to interest and how much to principle. Around the 20 year mark you can see a nice straight line down, as opposed to a ton of interest at the beginning.
Post # 9
@Meowkers: Is that for a 30 year fixed? I was in escrow in early December and locked in at 4%, but it was 30 year fixed.
Yes when my Darling Husband looked at the amortization schedule his reaction was so cute. He was shocked and disgusted all at once and came over to ‘report’ it to me that banks were robbing people blind. I just smiled at him and said “yup, they also run the country too, but if we want to be home owners this is what we have to deal with!”
Post # 10
@moderndaisy: yes that’s on a 30 year fixed. congrats on your new home!
Post # 11
Rework your budget to see if you can pay additional principle each month. We pay $700 extra/mth and our 30 year fixed will be paid off in 10 years (well now 7 1/2). There are many calculators that will show you what amount you pay extra on your principal will not only save you money but show you how many years you can cut off.
Post # 12
In the last year, we just bought a house @ 30 year fixed and 4.25% and I’ve been wondering how it will impact our taxes. Great to read the information about mortgage interest and taxes…
Post # 13
We got a 30 year fixed at 3.77….