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  • Writer's pictureErich Schwerd


There are a few things to keep in mind. The standard way of going about purchasing a home is to ask the bank how much you qualify for, picking the neighborhood you want, and getting a 30-year mortgage. There are many pitfalls with this process. The better way to do it is to first calculate for yourself how much you can afford. You know your budget. Keep in mind that houses are glorified cardboard boxes, in constant need of repair. We never consider the annual maintenance of a house when we purchase, but we should. I have to put on average $6000 into my house every year just to keep it from falling down. Then of course, you have taxes and insurance, and no one tells you to be mindful of that. After considering those factors, see what your potential monthly mortgage payment can be, and then discover how much you can borrow based on that payment. It will be less than the bank wants you to borrow, but you will easily make your payment and you will be able to go on vacation and eat dinner.

One area where you don’t want to be mindful of the mortgage payment is on the term of the mortgage. Everyone gets a 30-year mortgage. But a 15-year mortgage is the way to go. Using a $100,000 loan, consider a 4.5% interest rate. For a $200,000 or $300,000 mortgage, just multiply the number in the example. Every $100,000 borrowed at 4.5% interest gives you a $507 mortgage payment over thirty years. Now, your total interest paid is $82,000. On a 15-year mortgage, the rate is actually lower. Assuming 4%, but it could be less than that, your payment is $740 a month, and you pay a total of $33,000 in interest. You paid $50,000 less for the same house!! Or $100,000 less, or $150,000 less.

If you are considering buying a house, I recommend buying one that you truly can afford with a 15-year mortgage.

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