https://www.realtor.com/realestateandhomes-detail/218-Cliff-
Rd_Nantucket_MA_02554_M33474-16998
Needless to say, my mortgage payments and mortgage balances were
so high I needed to widen the columns! The amount of my loan, after I
paid the 20% down of $3,599,000, was $14,396,000. The annual
interest rate on a 30-year fixed rate mortgage from FRED as of
11/17/2022 was 6.61%. Based on these values, the overall amount
of interest paid over the term of the loan would be $18,737,114.75;
130% of the initial loan amount, on interest alone! The monthly
mortgage payment would be $92,036.43.
Changing a few variables has a huge impact on those numbers; if I had
obtained a mortgage for the lowest interest rate in the trailing 12
months, I would have paid 3.05% from 12/23/2021. If I had obtained
a mortgage for the lowest interest rate in the last 5 years (which is
also the lowest interest rate in the past 10 years, and the past 50
years), I would have paid 2.65% from 01/07/2021. With other
variables unchanged, I would have paid $7,593,884.03 in total
interest with a monthly payment of $61,083.01 on an annual interest
rate of 3.05%. I would have paid $,6,487,840.26 in total interest with
a monthly payment of $58,010.67 on an annual interest rate of
2.65%. Considering that the average ROI on the S&P 500, historically,
is just over 10%, and in the past 10 years, 14.5%. If I were able to pay
for the house in cash, it would still make financial sense to obtain a
loan at these interest rates and invest the cash in a mutual fund or
ETF that tracks the market. Taking $14,396,000 and using the ROI for
the S&P 500 average of 10%, compounded yearly, you would have
with $251,201,595.06 at the end of your 30 year mortgage- more
than enough to cover the mortgage, at any interest rate I calculated.
It I had obtained a mortgage for the present interest rate of 6.61%,
but halved my down payment to 10% ($1,799,500), my loan balance
would be $16,195,500, my monthly mortgage payment would
increase to $103,540.98, and the total interest over the life of the
loan would exponentially increase to $21,079,254.09. Conversely, it I
had obtained a mortgage for the present interest rate of 6.61%, but
doubled my down payment to 40% ($7,198,000), my loan balance
would be $10,797,000, my monthly mortgage payment would
significantly decrease to $69,027.32, and the total interest over the
life of the loan would decrease to $14.052.836.06.
When considering such a large purchase, it's important to look at
these factors, as even small changes can impact your financial
situation, both presently and in the future.
