The Unbelievable Cost of Owning a Home
I'm no expert on this stuff, so if I've made any mistakes, by all means leave a comment and let me know.
Lets assume for a moment you buy a home with a $300,000 mortgage. This is high no doubt, but not unheard of these days.
If you take the whole term of 30 years to pay it off, assuming a low 6.29% fixed interest rate (which according to myFico.com is the standard rate as of this posting if your FICO score is above say 760 which is the highest range you can be in) you'll have paid nearly $670,000, or over $700,000 if your score is significantly lower.
This means that without including down payment, closing costs with all the fees, insurance, taxes, maintenance or other expenses you're already paying more then two times the total price of the house.
This means that these mortgage companies are making the entire cost of the house every time they make a loan, talk about a good business. Where else do you get a 100% markup on costs?
Then take into account that they'll add in fees, some of which are understandable, others like document preparation basicly charging you to run their printer to spit out the forms, or charging $150 for a $15 credit report check clearly ripping you off. After all how likely are you to complain about being ripped off for $100 when you're laying out maybe $50,000 of your own cash and agreeing to pay thousands every month for decades to pay off this loan?
It's also a bit depressing to know that with nearly $2,000 a month payment, less then $400 the first month pays toward the principle, the rest paying only interest.
You'll have paid more then the $300,000 original loan within the first 13 years. After that is pure profit for the loan company, 17 years worth of payments for their profit.
Now I understand that without this system it is difficult for anyone who's not born rich to get their own home. To save enough money would take them maybe 15 or 20 years and thats if they didn't spend it on something else in the mean time. And then what do you do if you want to start a family? You'll have a home to raise them in about the time the oldest is off for college. This is most certainly not an acceptable option to nearly everyone.
Now think of this: Lets assume the house was originally worth around $360,000. Once it's paid off in 30 years, if you ever wanted to sell it, you'd have to recieve more then $750,000 for it before you actually made any profit. If you take inflation into account assuming 3% per year, you'd actually have to recieve over $1,820,000.00!!!
So, do you think a $360,000 property will sell for nearly 2 million dollars in 30 years?
I really have no idea.
I do know that at a conservative savings rate (say $8,000 a year, inflation adjusted) for 40 years will net you (assuming a 10% interest rate) just a few million dollars with which to live through retirement. At least you shouldn't need to buy a home by that time.
I think this system is just one of many plaguing our society which simply is not good enough.
It takes advantage of the people who have the least money (after all those born rich can buy the house outright saving themselves a good $400,000+ now are they the ones who need to save that money?) and really what other choice is there if you want your own home?
Lets assume for a moment you buy a home with a $300,000 mortgage. This is high no doubt, but not unheard of these days.
If you take the whole term of 30 years to pay it off, assuming a low 6.29% fixed interest rate (which according to myFico.com is the standard rate as of this posting if your FICO score is above say 760 which is the highest range you can be in) you'll have paid nearly $670,000, or over $700,000 if your score is significantly lower.
This means that without including down payment, closing costs with all the fees, insurance, taxes, maintenance or other expenses you're already paying more then two times the total price of the house.
This means that these mortgage companies are making the entire cost of the house every time they make a loan, talk about a good business. Where else do you get a 100% markup on costs?
Then take into account that they'll add in fees, some of which are understandable, others like document preparation basicly charging you to run their printer to spit out the forms, or charging $150 for a $15 credit report check clearly ripping you off. After all how likely are you to complain about being ripped off for $100 when you're laying out maybe $50,000 of your own cash and agreeing to pay thousands every month for decades to pay off this loan?
It's also a bit depressing to know that with nearly $2,000 a month payment, less then $400 the first month pays toward the principle, the rest paying only interest.
You'll have paid more then the $300,000 original loan within the first 13 years. After that is pure profit for the loan company, 17 years worth of payments for their profit.
Now I understand that without this system it is difficult for anyone who's not born rich to get their own home. To save enough money would take them maybe 15 or 20 years and thats if they didn't spend it on something else in the mean time. And then what do you do if you want to start a family? You'll have a home to raise them in about the time the oldest is off for college. This is most certainly not an acceptable option to nearly everyone.
Now think of this: Lets assume the house was originally worth around $360,000. Once it's paid off in 30 years, if you ever wanted to sell it, you'd have to recieve more then $750,000 for it before you actually made any profit. If you take inflation into account assuming 3% per year, you'd actually have to recieve over $1,820,000.00!!!
So, do you think a $360,000 property will sell for nearly 2 million dollars in 30 years?
I really have no idea.
I do know that at a conservative savings rate (say $8,000 a year, inflation adjusted) for 40 years will net you (assuming a 10% interest rate) just a few million dollars with which to live through retirement. At least you shouldn't need to buy a home by that time.
I think this system is just one of many plaguing our society which simply is not good enough.
It takes advantage of the people who have the least money (after all those born rich can buy the house outright saving themselves a good $400,000+ now are they the ones who need to save that money?) and really what other choice is there if you want your own home?
posted by cyber-mountain guru at 11:16 AM
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