The house I selected was in Sparta, New Jersey because my partner and I both grew up in
the state; and I chose Sparta specifically because it is supposed to be a very safe town.
After some fun Zillow searches, I found the perfect house for us (pictured below) which is
currently selling for $899,999. With a 20% initial payment of $179,800, the amount of the
loan was $719,200. According to FRED, a 30-year fixed rate mortgage is calculated at
7.08% which puts the monthly interest at 0.59%. Over a 30 year-loan (360 periods), this
puts the monthly payments at $4,823.56; the annual payments at $57,882.70; and the
lifetime payments at $1,736,481.13. The overall amount of interest paid over the term of
this loan would be $1,017,281.13.
(42 Benham Way, 2022)
If I were to play around with the variables, the first thing I would be curious about is the
impact of a 20-year loan vs a 30-year loan. With 240 payment periods instead, the lifetime
payments would be $1,346,529.20 and the overall amount of interest paid would be
$627,329.20. This is a savings of $389,951.94 overall but means that the payment would
increase by $786.98 per month.
Alternatively, if we were to adjust the down payment to 30% and keep the repayment
period at a 30-year period, the amount of the loan would become $629,300; the lifetime
payments would be $1,519,420.00 of which $890,120.99 would be interest. Finally, if we
were to only adjust the interest rate down to 5% but keep and keep the repayment period at
a 30-year period and the down payment at 20%; the lifetime payments would be
$1,389,895.60 of which $670,695.60 would be interest.
Of the four unique scenarios laid out with one variable changed each time, the lowest
lifetime payment came from the loan term being reduced from 30 years to 20 years. See
summary below:
Lifetime Payment Situation Variables
$1,736,481.13 a 30 years, 20% down, 7.08% interest rate
$1,519,420.00 a 30 years, 30% down, 7.08% interest rate
$1,389,895.60 a 30 years, 20% down, 5% interest rate
$1,346,529.20 a 20 years, 30% down, 7.08% interest rate
For fun, I also ran two additional scenarios of best- and worst-case situations based on all
or none of the variables being favorable:
Lifetime Payment Situation Variables
$2,856,403.51 Worst - 35 years, 10% down, 9% interest rate
$996,444.35 Best - 20 years, 30% down, 5% interest rate
As you can see above, the best case situation has you paying $1,859,959.16 less over a
lifetime and is the optimal route if you could fiscally afford it.
References:
30-year fixed rate mortgage average in the United States. FRED. (2022, November 10).
Retrieved November 16, 2022, from
https://fred.stlouisfed.org/series/MORTGAGE30US
42 Benham Way. (2022). photograph.
Zillow, I. (n.d.). 42 Benham Way, Sparta, NJ. Zillow. Retrieved November 16, 2022, from
https://www.zillow.com/homedetails/42-Benham-Way-Sparta-NJ-
07871/52966099_zpid/
