home financing question

nitrouz

I've been pondering buying a home. When I go to a real estate web site that has mortgage calculators they show the interest rate at say 6.38%...How come if you bought a $100,000 house you would end up paying back almost twice as much?

Are these 'low' interest rates really a scam?

Thanks for the help.



"He that hath no sword, let him sell his garment and buy one."
- Jesus Christ in Luke 22:36

familyguy

No, it's the other half of the equation: time. 30 years is a heck of a long loan. Plenty of time to build up interest. For example, my wife's truck had 6.99% loan, but it was a 6 year term, interest was only about $4K on a $25K loan.

Our first house together, on the other hand, was $92K financed at 8.65% and 30 years, total payout by the end of the loan was almost $200K![:0][B)]

Check out the total pay-off for a 15yr loan and you'll see why the industry standard is 30 years. They make a crap load of money in interest.

You can cut the total paid over the life of the loan by literally one third if you go to a 15 year term. We did.





Got a new gun for my ex-wife.....pretty good trade, huh?

nitrouz

And you are not kidding.

So if you were in the military, being sent to a place for only two years...it would be pretty stupid to buy a house and finance it for 30 years when you know you have to sell it in 2 years, when you really didn't even pay down the principal let alone the interest.

Never bought a house, trying to learn a bit. Thanks for the replies.





"He that hath no sword, let him sell his garment and buy one."
- Jesus Christ in Luke 22:36

familyguy

In that scenario, I would pick an ARM (Adjustable Rate Mortgage) and 30 year loan. ARM's typically have a low fixed rate for the first few years before they start adjusting. So you'd have less interest and a lower initial payment due to the term. The adjustable rate wouldn't matter if you know you are going to sell within the next couple of years.

On the other hand, if you can afford the payment, a 15 year fixed would build equity more quickly. The interest on mortgages are front loaded - they get their interest before you start seriously paying down the principal. On that first home loan I mentioned before, $50 a month was going to principal.

Seriously, there are so many programs to tailor the financing to your needs. Get opinions on lenders from people who have dealt with them, and see what's available.



Got a new gun for my ex-wife.....pretty good trade, huh?

Varmintmist

Nitrouz,
Im not a realtor, but I have ought and sold a few, and I have been a landlord and a tenant. To buy a home for 2 years with no guarantee of selling it just aint a good move IMHO.


Now there are senarios where it could pay off.

A. You plan on locating there on a permanant basis at a later time.
B. You can rent the place while you are away. Realty Co.s will manage prop for you, although they still call you with the headaches. Long distsnce landlord is a pain, but do-able.
C. Buying a strait investment property in an area that you think will sell at a increased value. Like vacant land near a (shudder) golf course.



Those people who see nothing but grey areas, no black and white, are lost in the fog.

nmyers

nitrouz, home & mortgage interest rate charts are based on the "decreasing balance" method; that is, you pay mostly interest at the beginning of the loan, but, as you reach the end of the load, each month's payments become primarily principal. This ensures that the lender will get most of his interest if you were to pay off the load early.

There's really no deception here. Paying an amount of interest equal to the amount of the loan is not so terrible. After all, you get the use of the lender's money for a long time. When interest rates were high, it was not uncommon to pay 2 or 3 times the cost of the loan in interest. Today's offerings are a real bargain.

The REAL scams come later. Transfer fees, loan fees, etc, especially in certain states, are ripoffs. And, the biggest ripoff is "points", which is "gift" that you present to the lender for the privilege of borrowing his money.

Interest rates are unlikely to get lower. You should have bought a house a few months ago, but, in 5 or 10 years, you will look back at today's rates & say, "What a bargain!"

Neal

offeror

nitrouz --
I agree. I've been told by realtors that you have to keep a home for 3-5 years just to get your money back out of it when you sell. You have closing and realtors' costs, and then the initial house payments are nearly all interest and very little principal reduction. So if you move every 2 years, every time you buy a home and sell again, you will lose money. If you know you'll be moving every 2 years for a while, you're better off leasing or renting a house until you can settle in one place.

T. Jefferson: "[When doing Constitutional interpretation], let us [go] back to the time when [it] was adopted. [Rather than] invent a meaning [let us] conform to the probable one in which it was passed."

select-fire

A lot of states will let you take your rent off as a deduction. I feel (unless you are pretty well off) that buying a home and having to sell it ( which in itself is a risk ) every two years should be avoided. Save your money and buy a home when you are settled down. Avoid the adjustable rates (because they could eventually go up)and raise your payment beyond your income. Fixed rate at a Long term (30 year) are best. You can always send in more principal payment each month, but on a 15 year payment you are committed to the larger payment. Look for distressed properties (forclosures)

Horse Plains Drifter

What others have said is right. We bought our house in 1991. We financed $44,000. If we had went for a 30 year loan our paynent would have been $480.00 I think. A 15 year loan was a payment of only $80.00 more, so that was what we went with. It also took about five years to start seeing the principle amount go down. It's not something I'd do if I had a chance of moving in a couple of years.

81st FA BN WWII...Thanks Dad
U!S!A! ALL THE WAY!!

only winchesters

The question was, why do you pay so much in interest over 30 years? That's because every year the dollar is worth less and less. A 1973 dollar had more buying power than a 2003 dollar. Look in your area, at house prices 30 years ago, have price doubled, trippled or even more? Buying a house to live in is your best hedge against inflation. I bought my first house 16 years ago, it has trippled in value over that time, a lot of things have gone up in that time frame, the cost of a new car, food, utilities, taxes, etc. The lenders know that over 30 years they have to make something. Also your wages go up over that period of time. Ask someone who bought a house 25-30 years ago what their payment was when they bought, seems real small today, doesn't it. Even if you have to relocate in a couple of years, you don't have to sell, you could rent/lease it out.
Hope this helps. Regards Dave

nitrouz

Thanks y'all appreciate the help.


Too bad I couldn't take out a home loan on a fully decked out motorhome 'eh?....At least it could move with me.



"He that hath no sword, let him sell his garment and buy one."
- Jesus Christ in Luke 22:36