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Maybe I need to double check the math on this, but due to amortized interest, I'll be paying 2 million dollars for my half million dollar home. I don't underst

Maybe I need to double check the math on this, but due to amortized interest, I'll be paying 2 million dollars for my half million dollar home. I don't understand why we are pushed to go into debt on housing. I don't plan to sell, and my apartment was 1/6 the price. Looking back, I would have saved up money for 6 years and buy the same house with Cash. The only way I see this as a good investment, is if we experience near hyper inflation in the next 15 years.

Cerium 7y ago
That does not sound right to me. Your interest rate would have to be pretty high. I currently have a loan with a 4% rate I got last year, and my friends are reporting getting around 3% currently. With a 4% rate, you should end up paying a total of about $860,000 - $500,000 in principal payments and $360,000 in interest.
- lotsofpulp 7y ago
  It is shocking how many people come out of a high school education in the US without understanding amortizations. I cringe every time I hear “front loaded” interest. As if the borrower didn’t “front load” the debt? https://www.bretwhissel.net/amortization/amortize2col.pdf https://www.bretwhissel.net/amortization/amortize2col.pdf
- stkdump 7y ago
  Also, buying the same house 6 years later means probably paying more for the same house. And you have to live somewhere in the meantime as well.
- wolfhumble 7y ago
  For positive discount rates today's value (NPV) of both principal payments and interest will actually be less than what is stated as they are paid in the future (1:). Of course, the effect of this depends on the size of the discount rate, https://www.investopedia.com/terms/n/npv.asp https://www.investopedia.com/terms/n/npv.asp (1: not looked at the calculation as the time period is not stated)
YourMatt 7y ago
You might want to recheck your math. It should be ~$800k total with current rates. If you're including taxes, insurance, HOA fees, utilities, maintenance, etc, you'll easily be over a million, but I can't see any calculation coming out to $2M.
authoritarian 7y ago
That doesn't sound right to me. I purchased my home about 3 years ago and if I remember correctly on top of principal I would end up paying an extra 40 percent or so in interest. To pay 2 million on a half million dollar loan your interest rate would have to be insanely high (like 30+ percent). In my case my mortgage was only about $300 more than the apartment I was living in previously (very expensive area) so it would've taken an extremely long time to save up the cash to purchase our home. The house has also appreciated nearly 50% since I purchased it, so if I had waited it would have been too expensive for my budget

Cerium 7y ago

That does not sound right to me. Your interest rate would have to be pretty high. I currently have a loan with a 4% rate I got last year, and my friends are reporting getting around 3% currently. With a 4% rate, you should end up paying a total of about $860,000 - $500,000 in principal payments and $360,000 in interest.

lotsofpulp 7y ago
It is shocking how many people come out of a high school education in the US without understanding amortizations. I cringe every time I hear “front loaded” interest. As if the borrower didn’t “front load” the debt? https://www.bretwhissel.net/amortization/amortize2col.pdf https://www.bretwhissel.net/amortization/amortize2col.pdf
stkdump 7y ago
Also, buying the same house 6 years later means probably paying more for the same house. And you have to live somewhere in the meantime as well.
wolfhumble 7y ago
For positive discount rates today's value (NPV) of both principal payments and interest will actually be less than what is stated as they are paid in the future (1:). Of course, the effect of this depends on the size of the discount rate, https://www.investopedia.com/terms/n/npv.asp https://www.investopedia.com/terms/n/npv.asp (1: not looked at the calculation as the time period is not stated)

YourMatt 7y ago

You might want to recheck your math. It should be ~$800k total with current rates. If you're including taxes, insurance, HOA fees, utilities, maintenance, etc, you'll easily be over a million, but I can't see any calculation coming out to $2M.

authoritarian 7y ago

That doesn't sound right to me. I purchased my home about 3 years ago and if I remember correctly on top of principal I would end up paying an extra 40 percent or so in interest. To pay 2 million on a half million dollar loan your interest rate would have to be insanely high (like 30+ percent). In my case my mortgage was only about $300 more than the apartment I was living in previously (very expensive area) so it would've taken an extremely long time to save up the cash to purchase our home. The house has also appreciated nearly 50% since I purchased it, so if I had waited it would have been too expensive for my budget