Question: > Do you think that if > you are looking at say 30,000 house, and you finance it for 30 years, you > will pay only 1,000 per year?
Answer: Of course not. You will pay about the same amount of money per month that you will pay in rent. To make things easier, I’ll just call it $400 a month.
Now, if this is a fixed payment over 30 years, you will eventually pay 144K for your home, not counting additional costs such as taxes, maintenance and insurance – but not too many people get 30 year loans anymore. Plus at the end of 30 years, if you’re not dead, you will own the house. But like I said, most people now get the 15 year and have a mortgage burning party in their 40’s.
If you pay this amount in rent, unless you have a really, really understanding landlord – you can expect to pay $400 a month the first year, $420 a month the second year, etc. Using a *modest* increase of only $20 per month for 30 years, ant the end of 30 years you will have paid out 241,200 and have nothing. And that is a very modest figure since over a period of 30 years the price of housing is likely to increase much more than that.
Now, since I can’t make the price of housing magically come down to meet my income, I do the reasonable alternative and I take out a mortgage. After I take that mortgage, I realize that I am paying interest on that money, but meanwhile I have the freedom to make improvements to my home that will increase it’s value, and I have the additional benefit of knowing that my payments will not increase – unlike rent.
So, after 10 years, I have paid out a total of 48,000, some of which is now liquid equity in my home, or I could have been paying rent, with increases over that same period of time, and maybe saved 30,000 to pay cash for a house with – only now, houses cost 60,000. So, I have two choices. I can continue to pay out rent, with its increasingly expensive prices, or I can take out that 30,000 and apply it towards a mortgage like I should have done 7 years back.
Of course, in RL – I didn’t like any of those circumstances, so I chose to start with a modest property that had good resale value once it had some minor cosmetic repairs, sell it for double or more of what I paid for it *before* I paid large amounts of accumulated interest, and turn that profit over to a better place. Unlike Ken H. I do not want to do this forever, but only as a means of eventually outright ‘owning’ my home.
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