Somebody whose buying a house was talkling to me the other day about how much in the end it will cost with interest and stuff.

And their estimate was on a $200k house, that on say a 30 year mortgage by the time all is said and done you will have spent $600k to actually own it.
Now I realize there are fees and interest, but adding up to 200% of the price of the house?

At that point why does anybody get a loan instead of just living insanely cheap untill they can just purchase the house outright, pay their $200k + fees and save themselves a huge chunk in the long run?

Or is he wrong or am I just tottally lost?

No i'm not looking at buying a house, but I am looking at my finances and the fact I want to get a house in about 4-5 years.

5/13/2006 9:45:14 AM

200% of 200k is 600k? something tells me you arent in any place to thinnk about finances much less argue them

5/13/2006 9:48:27 AM

200% of 200k = 400k

200K (price) + 400K (interest & fees) = 600K

[Edited on May 13, 2006 at 9:50 AM. Reason : &]

5/13/2006 9:49:52 AM

Yeah, that's about right depending on your interest rate. At 6% you'd actually be paying ~430,000 on a 200,000 house. However, if you get a 15 year loan, you'll only pay ~300,000 for your 200,000 home.

The thing about buying, despite this, is that it's generally an investment. You can pay off your loan at any time by selling the house for at least how much you owe on it. Unless the area you live in has gone to shit, you'll likely also get back what you put into it.

So, instead of pissing away $x.xx every month in rent that you will NEVER SEE AGAIN, you can get a mortgage and have pretty good chances of getting back almost every dime that you put into your monthly payment.

That's my understanding.

And as far as saving up to buy a house with "cash," most people aren't in a position to do that. They'd prefer to just go ahead and have a mortgage so they have a chanc of seeing that money again, rather than paying rent for 15 years on top of trying to save $1000+ per month to put toward that house someday. And in 15 years, that 200,000 house may well end up selling for $300,000.

Here's a calculator that will tell you how much interest would be on such a loan: http://www.mortgage-calc.com/amortization/amortizationscheduleandcalculator.html

5/13/2006 9:53:47 AM

we just bought our house, price was 133750, and the paperwork says we will be paying 350K. Sooo yes it is a huge amount in interest.

5/13/2006 9:54:29 AM

the loan I took out for my house is about half that and my total payments will only be around $200,400. So taking into account inflation, saving money in taxes and building equity instead of paying rent doesn't sound like a bad deal to me.

While buying a house in this area isn't as hard many areas of the country many people struggle just to get a downpayment they would never be able to save enough to buy a house in cash.

5/13/2006 9:55:20 AM

Thanks everyone for the info!

5/13/2006 10:10:48 AM

in addittion to what's been said above, don't forget the tax advantages of a mortgage. that interest is tax deductible so your effective rate is much less.

5/13/2006 10:24:40 AM

Even if you had 200K to spend on a house it would be stupid not to get a mortgage.

5/13/2006 1:20:54 PM

The tax code allows you to deduct interest paid on your home. It is better to get the mortgage, pay the interest and accept the tax shelter than to pay taxes on your rent money.

Any financial advisor will tell you that even if you have the cash to pay for a home it is wiser to take out the home loan (income tax deductions) and invest your money in something else.

5/13/2006 1:29:13 PM

^eh, maybe in some economic conditions will it make sense, but there are also situations where it may be better to buy in cash

5/13/2006 1:38:13 PM

yea those tax deductions are pretty sweet

5/13/2006 5:57:59 PM

Quote :

"Even if you had 200K to spend on a house it would be stupid not to get a mortgage."

Basically, yeah.

Even without the tax deduction, if you had that much money you could easily out-invest the interest rate with minimal risk to effectively pay no interest.

The other things that add into your house payment are property taxes and insurance, which don't amount to a whole lot.

5/13/2006 6:15:04 PM

you have to pay rent when saving the $200,000

by that time the house will cost $400,000

5/13/2006 6:21:56 PM

the questions is how cheap would you have to live, how much could you save per month, and how long would it take you to work up that $200,000 in cash?

lets say you could save an extra $200 a month at 10% apr. it'd take you around 20 years to amass 200K. now, assuming you are spending $500 in rent a month, you've spent 120000. not to mention the fact that 500 in rent is a small amount and would give you a very small/crappy place. could you live like that for 20 years? what if you found a girl and wanted to get married? have kids? need a bigger place?

not to mention the fact that in 20 years you can not buy as much house for $200000 as you could today. in other words your 200000 house today would be costing 250k-300k depending on markets and inflation

getting a mortgage allows you much more room for the money as well as the tax breaks.

there is another related thread that CarZin has posted in discussing paying off a house loan early versus investing that money. he shows that it is far more beneficial to invest the extra money you would pay on your loan into investments that return higher rates than your mortgage rate and you come out ahead in the end because you are earning more interest on your investments than you are paying on your mortgage.

[Edited on May 13, 2006 at 8:03 PM. Reason : .]

5/13/2006 7:58:56 PM

another way to look at it is so...

for about $1000/month you can get a 140000 loan. assuming you could save $500 a month and spend $500 a month on rent, it would take you about 12 years to save 140000 in which time you've spent 72000 so your 140000 house is costing you 212000

again, not to mention the fact that in 12 years your 1400000 house will probably cost a lot more than 140000 due to appreciating house values and inflation.

5/13/2006 8:02:44 PM

Think about it.. Would you rent a car while you saved up the money to pay for one in full with cash?

Buy the house if you can afford payments and you will be way ahead if you rented a place and saved the money. Factors that are important are interest which you can deduct on your taxes and appreciation. Unless you are living somewhere for free it's wise to get the mortgage rather than paying rent and trying to save the money to buy the house in full.

5/13/2006 9:55:43 PM

I know my parents have been paying for our house since 1986 and still owe the purchase price

5/13/2006 11:44:46 PM

^how many times have they refinanced to cash out money for random shit?

5/14/2006 12:18:18 AM

yea, paying an interest-only is not the same as paying down on a house.

tell your parents to get thier shit together and start acting like adults.

5/14/2006 9:37:53 AM

Lady, might want to consider renting a house. We are going to do that until the fiancee finishes up her PhD and should have 10k saved for a down payment. $750/month ... which is actually cheaper than trying to find a NICE 3BD apartment in this area.

Here's what we came up with for figuring out what we could afford. We primarily did the calculations for 15 year and that's what the combined income part applies to. Website we used was http://www.mortgage-calc.com .

Anybody is welcome to agree/not agree on these numbers:

Quote :

" - 100,000 * 7% * 15 years = 900/mo (50k combined income required) - 100,000 * 7% * 30 years = 665/mo - 125,000 * 7% * 15 years = 1125/mo (60k combined income required) - 125,000 * 7% * 30 years = 831/mo - 150,000 * 7% * 15 years = 1350/mo (75k combined income required) - 150,000 * 7% * 30 years = 1000/mo - 250,000 * 7% * 15 years = 2250/mo (100k combined income required) - 250,000 * 7% * 30 years = 1650/mo - 350,000 * 7% * 15 years = 3150/mo (125k combined income required) - 350,000 * 7% * 30 years = 2350/mo - 500,000 * 7% * 15 years = 4500/mo (150k combined income required) - 500,000 * 7% * 30 years = 3350/mo "

[Edited on May 14, 2006 at 10:07 AM. Reason : .]

5/14/2006 9:56:57 AM

Keep in mind, those are for Perlith's specific debt-income ratios and will vary person to person.

5/14/2006 12:00:46 PM

^
I'll explain my math.

Take the first example ... of the 50k gross, I'm assuming a net of 2/3 after taxes, medical, retirement savings, etc. etc. deductions from the paycheck. So with $33,000 divided over 24 paychecks, that's $1375/paycheck. I am assuming the first paycheck goes to pay strictly for housing and any housing related bills. (And yes, I always overestimate). The second paycheck goes to pay for any remaining bills and (eventually) kids. I'm also scaling up proportionally ... I'm assuming I'll have more bills (or savings, or investments, or whatever) on the second paycheck as the income level increases.

I agree with David, this is largely based off my personal lifestyle. Regardless of how accurate (or inaccurate) it is ... nice to be able to sit down with significant other and roughly plan finances/future.

[Edited on May 14, 2006 at 1:02 PM. Reason : .]

5/14/2006 1:00:08 PM

7%?

I'm basking in the glow of my 5.625%

5/14/2006 7:49:17 PM

when did u get a 5%?

5/14/2006 11:42:43 PM

^ I got my 30 year fixed at 5.3% in nov. 2005

what great timing

5/14/2006 11:49:39 PM

Nov 2002, 15 yr fixed if that matters

[Edited on May 15, 2006 at 3:49 AM. Reason : a]

5/15/2006 3:49:18 AM

I got a 6.125%
a little higher since i did no closing costs.

5/15/2006 3:57:05 AM

i had to lock at 6.5% two weeks ago on a 30 yr fixed (of course the bank paid for all the closing costs and my move and everything so i'm not that upset about it)

not quite as nice as the 4.375% 7-year ARM i had on the other house

[Edited on May 15, 2006 at 12:36 PM. Reason : dfd]

5/15/2006 12:34:59 PM

One thing that I got burned on is alot of your standard loans have an early payoff fee...which I did not about when I bought the house. So when I sold the house, the penalty was a little over a thousand bucks. Just something to ask before you lock into a mortage.

5/15/2006 4:23:59 PM

prepayment on a retail mortgage? "standard" loans don't have that anymore, did you go through some sketch company or do an interest only thing?

5/15/2006 7:15:14 PM