4 ms·
Because you would theoretically be paying the same amount, just paying it as interest instead of principal. It's not practically that big of a deal, but it does
by mminer237 4y ago
Because you would theoretically be paying the same amount, just paying it as interest instead of principal. It's not practically that big of a deal, but it does mean you would have less equity. If you had to sell it, you would get much less back, and you might have more taxable gain if you don't qualify for §121 exclusion.
- lotsofpulp 4y ago> If you had to sell it, you would get much less back, and you might have more taxable gain if you don't qualify for §121 exclusion. This is a separate calculation of how much one can sell their house for relative to purchase price, unrelated to preferring low interest rate/high purchase price or high interest rate/low purchase price. But based on decades of interest rate history, it would seem prudent to bet the Fed will lower rates again in a few years and you can refinance to a lower interest rate.
- mminer237 4y agoIf you buy a $225,000 house at 7%, you pay $45,000 down and $1,200/month. If things stay like that and you move after five years, you'll have about $169,500 left on your mortgage and thus get about $55,500 back out, $10,500 more than your down payment. If you buy a $410,000 house at 2%, you pay $82,000 down and $1,200/month. If things stay like that and you move after five years, you'll have about $286,000 left on your mortgage and thus get about $124,000 back out, $42,000 more than your down payment.
- lotsofpulp 4y agoYou would have to account for the difference in down payment and opportunity cost of investing the $37k difference in down payments for the same period. So in the 7% scenario, you have $37k + investment return + $10.5k. In the 2% scenario, you have $42k.
- mminer237 4y agoI guess that's true. Assuming you yourself also get 7% interest, that would be another $15,000 you'd get, making you only lose $16,500 more.