3 ms·
This is technically correct but fails to account for the time value of money. If you took out a $200k loan at 4% you'd end up paying $343k for the entire 30-ye
by potatolicious 11y ago
This is technically correct but fails to account for the time value of money.
If you took out a $200k loan at 4% you'd end up paying $343k for the entire 30-year mortgage. This seems outrageous, except that $1 in 2045 (when you pay off the loan) is worth substantially less than $1 in 2015.
For comparison's sake, consider a 30-year mortgage that is paid of this year, started in 1985 - $1 in 1985 dollars is $2.21 in 2015.
Your mortgage payment (assuming you lock it in) do not increase over the life of the mortgage, which means your monthly payments are - in inflation adjusted dollars - dropping over time.
In fact, based on an inflation rate of 2%, your mortgage payment of $953/month in 2015 falls to an inflation-adjusted $523 by the time of your last payment, and the total cost of your $200k mortgage is actually closer to $258k (2015 dollars).
https://ostermiller.org/calc/mortgage.html https://ostermiller.org/calc/mortgage.html
- datashovel 11y agoI guess it probably also depends on financial well-being of the individual / family, and whether or not they're allergic to paying money for money and paperwork :)
- datashovel 11y agoalso I wonder what that $58k would look like if, over the life of the loan they put the equivalent of a mortgage payment into the stock market every month (assuming they're approximately matching returns of S&P500 index every year). EDIT: That is, as a substitute, instead of paying mortgage payment every month you're putting that same amount of money into your investment portfolio.