Posted by rico
In recent years the housing market has hit all time lows. House prices have decreased and mortgage interest rates are at 10-year lows. The real estate industry is saying now is the time to buy since everything is cheaper now then it has been in the past decade. However, is buying a house, even at the lowest prices in a decade, really worth the cost?
To most a 30-year mortgage sounds great, it gives the mortgage holder 30 years to pay off the cost of their house and now with low interest rates of around 3.9% it sounds like buying a house is a great deal. Unfortunately, the mortgage companies and real estate agents do not tell you the true cost of buying and owning that house. Here is an example to put the true cost of buying a house with a 30-year mortgage in perspective.
You’re interested in a nice house that fits your style and costs $250,000. You don’t have $250,000 in cash so you decide you need a mortgage and a 30-year mortgage only has an interest rate of 3.9%, plus you have 30 years to pay it off. You put 10%, $25,000, as a down payment on the house and choose to finance the remaining $225,000. However, you won’t be paying $225,000, you will actually be paying much more then that. Using bankrate.com you can calculate the actual cost of a loan of any type. That $225,000 mortgage will cost you $1061.25 a month for the next 30-years which ends up costing you $382,051.25 once the loan is paid off. That means that you will pay an extra $157,051.25. That’s an astounding 70% more that you will have to pay on this 30-year mortgage.To top it all off the 3.9% is a FIXED interest rate, if you secure a VARIABLE interest rate your interest rate can and will go up to numbers that make you pay exponentially more money by the end of the loan.
The above example only covers the cost of the interest you will pay on the mortgage. It does not cover taxes, closing cost, realtor fees, and the cost of upkeep on the house. United States property taxes are around $1,900 a year with several states having numbers in the $2,000-$3,000 dollar range. One county in New York even has a property tax of over $8,000! If you owned a house for 30 years (the entire length of the mortgage) and paid the U.S average property tax it would cost you $57,000 provided the property taxes were the U.S. average and that they never changed over 30 years. You also have to pay closing costs, which could go as high as a few thousand dollars and you also have to pay the realtor to buy and to sell (provided you sell in the future) the house. The last thing that most people don’t usually think about is the cost of upkeep on the house over the time they live there. Not only does mowing the law, cleaning the gutters, painting the house, patching/replacing the roof eventually, and all other things that a house needs cost money but it will also cost you the time to do all these things when your time can be better spent working or enjoying life.
Many “experts” will tell you that renting an apartment or a condo is a waste of time because you are just throwing money away. How is paying 70% more for your house in interest and paying thousands a year in taxes and upkeep not wasting your money? When renting a house there are no loans for your rent so you don’t have to worry about paying interest, there are no realtor fees or closing costs, and most of all no wasted time and money on upkeep of a house. In fact, in many apartments utilities such as water and heat might even be included in rent. In New York City, one of the most expensive cities for apartments, you can buy a studio, one-bedroom, or two-bedroom apartment for around $2,000 a month. At $2,000 a month it would take 15 years just to equal the total amount you would pay for the 30-year mortgage. With the amount of money you would save from no property taxes, no realtor fees or closing costs, no upkeep expense, and in many cases no utility costs, you could save enough money to buy a house or a new car without having to take a long expensive mortgage. Plus, with an apartment the landlord is responsible for fixing all the issues with your apartment such as plumbing or heating repairs, leaks in the ceilings, broken windows, etc., which also saves you time and money in the long run.
Renting is a much cheaper option as compared to buying a house with a mortgage. Renting is not only cheaper but also easier to take care of and once you are ready to leave you can just leave and pay off whatever is left in your rental contract. This is a great option for those who are fresh out of college or those who are starting a new career since they may be moved around a lot and constantly buying and selling a house could get really expensive. All in all, renting until you have the money to buy without taking a huge mortgage will save you thousands of dollars in the long run.
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Posted by rico
Welcome to Against the Grain! This is a place where I will share my views on different topics such as business, finance, politics, and many more. Due to the fact that some of these topics and views may be sensitive, I will only refer to myself as Rico and never refer to myself by my real name. Here at Against the Grain I plan to give all my readers a different perspective on many different topics. You do not have to agree with or like my perspective on these topics but please be respectful of everybody in the comments you make. I hope that you all enjoy this blog and if you have any comments, concerns, or suggestions please do not hesitate to email me at atg@onandup.com.
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