Home Ownership

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Wanna buy a house?

Well here's something to know, before you go all-in.

The real cost of a home loan

A home loan, or a "mortgage" is a financial product.

Mortgages are sold by lenders to eager home shoppers. 
And the more you borrow, the more money the lender makes.

Most first-time home buyers fail to calculate what a loan really costs.

Say you want to buy a house that's $400K.

If you put 20% down, your loan = $320K

And the average US mortgage interest rate is 7.07% today.

So let's say your loan looks like this: 
• you borrow $320K 
• 30-year fixed rate
• rate is 7.07%

To buy the house, here's what you'll actually pay over 30 years:
• $80K downpayment upfront
• pay back the $320K principal (the amount you borrowed)
• $452K in interest to the lender

You read that right.
$452K in interest, for borrowing $320K.

A $400K house will cost you $852K at the end of 30 years.

Most home buyers focus on their monthly payment obligation. 
Comparing the monthly payment to rent they used to pay.

But I look at the total cost of the loan.

I ask myself if I still like the $400K house for $852K. 
And of course the answer is hell no.

So here's my approach instead: 
• shop around for the best interest rate I can find
• buy a house I can easily afford
• pay extra principle on the mortgage Every Single Month

On a 30 year loan, you can save an incredible amount of money AND pay your mortgage off many years early just by paying extra toward your principle every month.

Look what happens if you pay $500 extra on our example mortgage every month:

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Home Ownership

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