I love how usery is legal. Also love how if you are a bank and have only one dollar in you vaults, you can issue a loan of thirty dollars, out of this air, based on that one dollar
The bank doesn’t even have that money, it’s invented.
A 7.5% 30 year mortgage is insane, more commonly you will get a 15-20 year 3-5% interest loan depending on the bank and market.
The reason it’s recommended to stay away from 30 year or longer loans, is that you have to deal with the very real threat of inflation for such a long period of time. The purchasing power of $300,000 in 1994 (30 years ago) would be equal to approximately $636,429.08 currently due to inflation. Because of that, the bank has to make good on the massive loss that they’ll take from inflation, causing you to pay significantly more in interest.
All of that still doesn’t mean that banks won’t do everything they can to scalp you of everything you have.
It’s a horrific market currently, and the 7-9% interest rate range is insane. Thankfully with how interest rates fluctuate, and with it being expected the fed will pull back their inflationary policies in September, it can reasonably be assumed that rates will fall to a much more manageable level by the end of the year or early 2025.
Plus 2019 was a buyers market with very good interest rates in the low 3% range, which imploded further with Covid to record lows of 2%.
With how the housing market is right now, holding off and waiting is definitely the best option. It is the worst possible time to get a fixed rate.
were you going for a double negative (won’t do everything they can) in the last sentence
Yeah, I would rather save to buy a home with cash entirely. What a waste of money.
Assuming you are in a country like the US, the money goes to bank either way. If you aren’t paying a mortgage you are paying rent. The landlord then uses your rent to pay an idenrical mortgage and skim some off the top for themselves.
To decrease total interest cost, here are three strategies:
- Refinance later at a lower interest rate.
- Pay off the mortgage faster than 30 years.
- Buy a more modest place to live, if possible.
Obviously none if that is easy and the first two are basically proxies for making more money but to the extent to which you can make choices those are good ones.
PS there is a hidden fourth strategy called workers’ revolution where you take over the banking and real estate sectors and start treating housing like a place to live rather than an investment.
So I did the math on an example 5 bedroom, 2 bath house of $300K (I picked this because I would need a larger home for my disabled mother and my half-brother to move in with me and my spouse), and let’s say the property taxes are $400/month, home insurance is $75/month, the down payment is 20% ($60K), and interest rate on a 30 year loan is 6.5%. Principal and interest would be $1,517/month according to trulia.
1517 + 400 + 75 = 1,992
(1,992 * 12 * 30) + 60,000 = $777,120 total cost including property taxes and home insurance.
Let’s try 10 years, and let’s give it an interest rate of 5.5%. Principal and interest would be $2,605/month.
2,605 + 400 + 75 = 3080
(3080 * 12 * 10) + 60,000 = $429,600 total cost including property taxes and home insurance.
Let’s instead do a 50% down payment ($150K) on a 30 year loan and a 6.5% interest rate. Principal and interest would be $948/month.
948 + 400 + 75 = 1,423
(1,423 * 12 * 30) + 150,000 = $662,280 total cost including property taxes and home insurance.
Let’s try a 10 year loan and a 5.5% interest rate this time. Principal and interest would be $1,628/month.
1,628 + 400 + 75 = 2,103
(2,103 * 12 * 10) + 150,000 = $402,360 total cost including property taxes and home insurance.
Let’s try the 50% down payment with each but this time with a 2% interest rate. On a 30 year loan, principal and interest would be $554/month.
554 + 400 + 75 = 1,029
(1,029 * 12 * 30) + 150,000 = $520,440 total cost including property taxes and home insurance.
Now let’s try with a 10 year loan. Principal and interest would be $1,380/month.
1,380 + 400 + 75 = 1,855
(1,855 * 12 * 10) + 150,000 = $372,600 total cost including property taxes and home insurance.
Even in the last example, I would consider the additional $72,600 ($15,600 from interest alone) to be pretty high but manageable (to my standards), and this requires being able to afford the enormous monthly cost. I believe the combination of the high principal with the long length of time is the biggest factor in the exorbitant cost in paying interest for the home. Most homeowners don’t earn enough tax deductions to go beyond the standard deduction.
I am very lucky to pay for an 2 bedroom apartment that costs $625/month, rent increase was only $25 every two years, garage is included, and utilities are included except electricity. I have access to great internet from a cooperative. I have been able to get away with having birds as pets with no pet deposits or rent increases (not pet-friendly apartment but received permission from landlord as long as no one complains about the noise). I have been able to screw things in the walls without complaints, and we were allowed to have a garden out in the lawn. I could make do with what I have. If I save for a few years (by reducing my expenses as much as possible), go to college, and earn more to save more, my spouse and I could just save for a home in full without losing so much from interest.
Plus considering dedollarization and the US’s economy potentially collapsing due to politicians’ idiotic policies in the next few or so years, I would rather not be in debt and paying such a high cost for a home per month and struggling because food, gas, household essentials, etc. astronomically increase in price.
The homes that are much cheaper in price and have lower property taxes tend to be in the middle of nowhere with no access to decent paying jobs or even decent internet speeds. Even fixer-uppers and land near better jobs are stupid expensive.
I’m confused about why you’re comparing the cost of a 2 bedroom apartment to a 5 bedroom house. Given that your rent pays someone else’s mortgage plus a bit if graft, the latter will of course be more expensive.
The mortgage of the people you rent from will have the same cost dynamics as you buying a house, more or less. They just pass the cost along to you, with a fee on top so you also help buy them a boat or a vacation or put their kid through college.
