The home I selected for this exercise is a home on Hilton Head Island,
SC. I have chosen this home because one of my dear friends and her
husband moved away to live their permanently. I miss them dearly
and have been to visit a couple of times. I would not purchase the
home as a permanent residence but a second/vacation home. I like
where I live now and would not want to move too far from my
children. That said, interest rates on homes that are not primary
residences are higher than those that are. I took that into
consideration when calculating the financing for such a purchase.
The list price of the home is $775,000.00. The minimum required to
finance the home as a second/vacation home would be $155,000.00.
The financed amount would be $620,000.00. Using the rate I could
obtain with our credit score and downpayment would be over 8%
(again, higher due to non primary residence). If I financed the home
for 30 years, the monthly payment would be $4583.93 (not including
taxes and insurance) and the total lifetime payments would be
$1,650,227.35 of which over a million dollars would be toward the
interest alone! If I financed the home for 20 years, the P & I (principal
and interest) would be $5,216.84 and the total payments would be
$1,,252,041.54. Interest payments over the life of the loan would be
$632,041.54. As you can see, if affordable, paying the loan off in 20
years would save $398,173.20 in interest. If I had the cash on hand, I
would pay more down since everything paid over the loan amount
goes toward interest. In addition, the lender may offer a lower
interest rate if the loan to value is lower because they have less risk.
