Even in the current housing market and after the loss of billions of dollars in home equity during the housing collapse, many people still place value in owning a home. Americans also generally regard home ownership as an investment.
However, despite our perceptions, owning a home can have its financial shortcomings.
Anyone who has purchased a home has to gasp for air when they consider how much they will pay in interest over the course of the loan. Depending, of course, on the loan terms, the interest can be as much or even exceed the value of the home itself. This is particularly common on 30 year mortgages, since interest equals principal multiplied by rate and compounded over time. Thus the interest on a $150,000 loan at 5% for 30 years is $139,883; for 20 years, it is only $87,584.
5.30% is the interest rate in which you will pay double the price of the house for the cost of your loan. If you take a loan for 150,000 over 30 years, you will pay 150,000 in interest.
The problem with home loans is that the interest is paid up front, as much as 80 percent the first five years and 70 percent the next five. So while the interest rate in a fixed loan may remain constant, it is calculated first and subtracted from the payment amount. Whatever is left is applied to principle. Thus a higher percentage of the payment is applied early in the loan.
On a $150,000, 5%, 30 year loan—at 10 years, the homeowner would still owe $122,308 despite making total payments on the loan of almost $96,000. Thus, although the homeowners have paid one-third of the loan term, they still owe 80 percent of the home value.
In a sense, when you also consider closing costs, renovations and repair, maintenance, taxes, private mortgage insurance (the cost paid by the homeowner to secure the lender’s loan) and the current state of depreciation, homeowners are really only renting their home for the first ten years. There are many factors to consider, such as down payment and tax advantages, but all things considered the first ten years of the loan are difficult for the homeowner (and actually, even at 20 years, the homeowner has only paid 50 percent of the loan value).
The problem is that many people live in their home for 10 years or less—due to changing family size, relocations, etc. From 2001-2008, the average was 6 years. With little salvageable equity over the first ten years, the new loan starts all over again with the purchase of another home—with all that interest again paid up front.
Thus, if a home is sold after ten years, the bank collected $96,000 in mortgage payments and the payoff value of the home, which is about $122,000. They loaned $150,000 and in ten years recovered $218,000—the same amount an 8 percent loan on $150,000 would return in 10 years.
If the homeowners stay in the home for 30 years, less and less of each payment is dedicated to interest. The formula dedicated to the value of money over time works out. Over the last ten years, only about $20,000 is interest. So while interest rate is constant, depending on the circumstances—and subject to debate—one might be able to do better through investment.
Prior to the housing crisis, homeowners and lenders relied on appreciation to balance the interest heavy loans. If the house had appreciated to $175,000 over the first ten years, the homeowner would at least walk out of the loan with $50,000. Today, homeowners are lucky to get the $122,000 still due on the loan. Thus, the homeowner is back to where he or she started.
When housing values and home equity were rising quickly, many people were tempted to cash out their home early in the loan and purchase a larger one. For lenders, this was great, because as noted, the earlier in the loan it is paid off, the more interest the lender collected (as a percentage of the entire loan). It also affected the availability of second mortgages. Due to declining equity, banks can no longer double up on the same house.
Owning a home is still part of the American dream, but as those underwater in their mortgage can attest, it is not the investment it was in the early 2000s. Homeownership favors those who can take out shorter loans or make additional principal payments—a couple ways to reduce the interest advantages afforded to mortgage lenders.
Part of the problem is the approach people have to home ownership. I don't think some of the people who cashed out on their first homes in order to get bigger ones were thinking of investment. Their focus was more on having a more spacious house. The market is unfortunately, an uncertain thing. Right now perhaps it's best to try to spread money around in 2 or 3 types of investments.ReplyDelete
Before you get a mortgage you need to take seriously the study of the formation of the family's income.ReplyDelete
That's a good question to answer... I am sure that all depends on several main criteria, such as the size and dimensions of your house, your ability to save and some more points...ReplyDelete
I thank you for the information and articles you providedReplyDelete
A well kept home is a happy home. Nobody wants to live in a house that needs a ton of repairs. Use the above information to successfully complete your home improvement projects. siteReplyDelete
instagram takipçi satın al
ankara evden eve nakliyat
fantezi iç giyim
sosyal medya yönetimi
mobil ödeme bozdurma
kripto para nasıl alınır
instagram beğeni satın alReplyDelete
fantazi iç giyim
sosyal medya yönetimi
mobil ödeme bozdurma
çekmeköy vestel klima servisiReplyDelete
kartal alarko carrier klima servisi
tuzla toshiba klima servisi
ümraniye lg klima servisi
pendik samsung klima servisi
kadıköy vestel klima servisi
maltepe bosch klima servisi
üsküdar alarko carrier klima servisi
beykoz daikin klima servisi
sosyal medya yönetimi
Good content. You write beautiful things.ReplyDelete
Good text Write good content success. Thank youReplyDelete
bonus veren siteler
kibris bahis siteleri
mobil ödeme bahis
Directory for Places is also a platform that values diversity and inclusivity. https://bit.ly/directory-for-places The team behind the platform is committed to featuring places that represent a range of cultures, perspectives, and identities. This makes it easier for users to explore new destinations and experience the world in all its diversity.ReplyDelete
A business guide provides information and guidance on various aspects of business management and ownership.
In the sweltering and damp weather,Guest Posting where the air is warm and there is steady uneasiness because of the developing heat we really want the cool help of an air conditioning unit in our life to get past the day effectively and have an agreeable rest during the evening.ReplyDelete
melbourne air conditioning installation
By and large, best to keep away from specific things might prompt extreme home repair costs. gillespiehandyman.comReplyDelete
The goal of interior designing is to create a functional and aesthetically pleasing space. reunionliving.caReplyDelete
DIY home repair projects can be a fun and rewarding way to spend your free time. RoofWorx - WentzvilleReplyDelete
Home is where we can express ourselves freely without fear of judgment. St. Louis Kitchen Remodel Co.ReplyDelete
Our homes can be a place of exploration and adventure. ecfoundationsReplyDelete
Water restoration professionals understand the unique challenges posed by different types of water damage, whether it's from clean water or sewage backups. mold remediation fort worthReplyDelete
Electricians can install and maintain Shoreline WA electrical systems for educational institutions, such as schools or universities.ReplyDelete
It is not difficult to track down a sufficient cat pet shop that conveys quality items at a reasonable rate from the solace of your own home.ReplyDelete
3 phase timer relayReplyDelete