My wife and I have been holding off on purchasing a home because I
just spent the past ten years moving around the country going from
one duty station to the other. Our dream home has at least ten acres
of land to carry out sustainable food production, but due to the
current environment of higher interest rates and not having enough
cash on hand to put a sizeable down payment down, we are looking
at a smaller starter home that we can build some equity in close to
my place of employment. b Currently, we are looking at the following
home:
It is not very impressive, but the location is right and the price point
is attractive. b The house lists currently for $210,000. With a 20%
down payment of $42,000, I would have to finance 168,000 at a 30
year fixed rate of 7.08%. b Lifetime payments total $405,629
indicating that the $168,000 financed over the course of the thirty
years would cost an additional $237,629 in interest.
Downpayment: 50% or
%110,000
Interest Rate 7.08%
Total interest paid:
$155,590; $737
Downpayment 0%; 0
Interest Rate 7.08%
Total interest paid:
$297,037; 1,408
Downpayment 20%;
42,000
15 year fixed Interest
rate: 6.38
Total interest Paid:
$93,432; $1,452
Downpayment 50%;
$110,000
15 year fixed Interest
rate: 6.38
Total interest paid:
$61,175; $950
I adjusting some of the variables several things become apparent.
First, longer loan durations typically bring lower monthly payments,
however, the total amount of money repaid in interest is quite high.
Fifteen year loans offer higher monthly payments but far less paid to
the lender in interest. It is also noteworthy to mention that it almost
always makes sense to put as much money down on the loan as
possible to allow oneself the ability to go for a fifteen year loan, or at
a minimum reduce the amount of interest paid. b In one example, the
purchaser goes for the 30 year loan while putting 50% down and still
ends up paying back almost the entire value of the house in just
interest payments. The lender is taking more risk by offering a longer
mortgage due to the risk of increased inflation destroying the value
of the money borrowed today.
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
Zillow, I. (n.d.). 308 W Keith Ave, Waukegan, IL. Zillow. Retrieved
November 16, 2022, from
https://www.zillow.com/homedetails/308-W-Keith-Ave-Waukegan-
IL-60085/4810204_zpid/
