If you can pay for your house, DO IT
I told you in a previous article that a Mortgage is only for people who don’t have the money to pay cash for a house. Taking out a mortgage to save income tax, as I told you, is total B S. You’ll never get the taxes back, but will you get back the interest? Not all of it. And the amount you won’t get back is a very huge chunk. Let me show you.
With mortgage rates, you’ll never get all the interest back
First, here are the current mortgage rates, according to Wells Fargo:
- 30 year fixed interest rate: 3.625 percent
- 15 year fixed interest rate: 3 percent
Let’s assume you want to buy a house that costs $200 thousand dollars. Let’s also assume that you get a 30 year mortgage. Here’s the 4 page amortization schedule, with the 30 year interest rate of 3.625 percent.
If you add the total interest paid on this mortgage during the 360 months, you’ll see that it come to $128,358. This means, you’ll pay $328,358 for a home that you purchased for $200 thousand.
To make matters worse, if this is a home you purchased 30 years ago but have paid off, the total interest would be much more, because the mortgage rates were much higher then. But let’s stay with the above figures, for simplicity.
If you decide to sell this house, the price will have to be $328 thousand or more. Otherwise, you’re going to take a beating, even at today’s low mortgage rates.
Let’s assume you take out this mortgage today, and decide to sell your house two years later. The total interest paid for the first two years is $14,238. If you sell your home for less than $214 thousand, you’re going to take a loss. Do you think you’ll get that much for your house? With today’s housing market, there’s no guarantee. There are too many unknowns that will influence the market.
Many financial advisers will tell you that you’ll get back all of the money you pay for a house. However, they’re talking about the price of the house, which is, the principle. You may get back all of your principle. You may get back a few dollars of your interest, but what you won’t get back will cause you to take a tremendous beating.
If you can afford to pay for your house, do it. You’ll make money this way. If you have to pay mortgage interest, you’ll never make money.