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If you aren’t going to invest your principal in something that will earn a higher interest rate than the loan interest rate on your house, then taking a loan an
by webinvest 4y ago
If you aren’t going to invest your principal in something that will earn a higher interest rate than the loan interest rate on your house, then taking a loan and giving away more money to your bank is not logical or smart.
A $300,000 home with a 20% down payment and 80% borrowed at 5.0%* will cost you __$523,813.88__ over the 30 year life of the loan.
Logically, cash just sitting in the bank 1% or less in interest should go towards your loan costing more than 1% or towards avoiding $5k-$8k of closing costs on a mortgage.
*Today’s interest rates are 5.125% for a 30 yr fixed rate mortgage.
- bombcar 4y agoOne way to look at it, assuming you already have the mortgage, is you can now buy a fixed rate bond that lasts the remaining term of the mortgage, at the rate of the mortgage. Ignoring income taxes, paying $10k down on a 5% mortgage with 25 years remaining is the same as purchasing a $10k bond at 5% that matures in 25 years. One downside, is that pre-paying your mortgage doesn't change the cash-flow immediately, it just changes the end date of the mortgage.