1. Should you borrow on a mortgage or pay cash for your main house?
Thread:
Let's say you wanted to buy a $320,000 house.
And you HAVE the $320,000 to pay cash.
What should you do?
Well, first let's look at what happens if you finance the entire thing.
Thread:
Let's say you wanted to buy a $320,000 house.
And you HAVE the $320,000 to pay cash.
What should you do?
Well, first let's look at what happens if you finance the entire thing.
2. If you finance the entire thing with 0% down at 5%, you will have monthly payments of $1,718 for 30 years.
(yes, I know that's higher than what most of you will be charged.)
If you add those up, you not only paid the $320,000 back, you also pay $298,419 in interest.
(yes, I know that's higher than what most of you will be charged.)
If you add those up, you not only paid the $320,000 back, you also pay $298,419 in interest.
3. Enter @DaveRamsey and @SuzeOrmanShow yelling at you:
'YOU BOUGHT THE HOUSE TWICE!!
WHAT THE HELL WERE YOU THINKING, DUMMY?!?'
Are they right?
Well, sorta.
They are correct that you WILL pay almost double what the house cost over 30 years.
But, here is what they leave out
'YOU BOUGHT THE HOUSE TWICE!!
WHAT THE HELL WERE YOU THINKING, DUMMY?!?'
Are they right?
Well, sorta.
They are correct that you WILL pay almost double what the house cost over 30 years.
But, here is what they leave out
4. If you SAVED the money that you bought the house cash with at 5%:
In 30 years, you would have EARNED $1,109,678 in interest.
So, you would have a grand total of $1,429,678 in your bank account.
And, your house is now paid off, and probably worth $1 million also.
In 30 years, you would have EARNED $1,109,678 in interest.
So, you would have a grand total of $1,429,678 in your bank account.
And, your house is now paid off, and probably worth $1 million also.
5. BTW, @DaveRamsey is the one telling people they'll earn 12% in the market, not me.
But, if he's right and you earned 12%,
Your $320,000 would be worth $9,587,175 (!!!) in 30 years.
However, let's forget him for a moment and go back to my humble 5%.
Here is the question:
But, if he's right and you earned 12%,
Your $320,000 would be worth $9,587,175 (!!!) in 30 years.
However, let's forget him for a moment and go back to my humble 5%.
Here is the question:
6. Which situation leaves you in the best financial shape?
I would argue you are much better off keeping YOUR money in YOUR hands, and using the bank's money to buy your residence.
Especially since interest rates are likely LOWER than 5%, and you can likely EARN more than 5%.
I would argue you are much better off keeping YOUR money in YOUR hands, and using the bank's money to buy your residence.
Especially since interest rates are likely LOWER than 5%, and you can likely EARN more than 5%.
7. But, even if the amount of interested paid vs earned is the same, you'll make more on the money that is growing (compounding) vs the interest you pay on the loan that is decreasing (amortizing).
Want more #MortgageAdvice ?
Want more #MortgageAdvice ?
This post was for @cdagod
Anymore questions?
Fire them off and I'll get to them over the next few days.
Anymore questions?
Fire them off and I'll get to them over the next few days.
