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Wednesday, September 10, 2014

85. Breaking Down Mortgage Loan Costs



How do mortgages work? What are you really paying for when you buy a house?



When we bought last year the difference between a 30 year and 15 year was a little less than a percent. We decided to go with a 30 year note and pay it off early. Currently, we're projecting to pay off the house in 17 years instead of 30. We paid 20% down on our house and so avoided PMI. 

That said each family or individual must consider the options and do what they feel is best for their situation.

Let’s use a fictional example for illustration shall we? I found this website via google: 





A 200k loan assuming 0 down payment at 4.125% interest for 30 years with a property tax of 1.25% and PMI of .5% starting this month (Sept 2014) would be: 

Monthly payment: $1,177.63
Total interest paid: $139,364.47
Total Tax Paid: $75,000.00
Total PMI Paid: $9,583.33
Monthly PMI: 115 payments of $83.33 each
Total of 360 Payments: $423,947.81
Pay off Date: Aug, 2044
PMI Pay-Off Date: Apr, 2024

A 200k loan assuming 40k down payment at 3.95% interest for 30 years with a property tax of 1.25% and PMI of .5% starting this month (Sept 2014) would be: 

Monthly payment: $967.59
Total interest paid: $113,333.45
Total Tax Paid: $75,000
Total PMI Paid: $0
Monthly PMI: N/A
Total of 180 Payments: $348,833.45
Pay off Date: Aug, 2029
PMI Pay-Off Date: N/A

The differences between the two loans above with the 40k down payment (or 20% down payment) are $210.04 a month, savings of $9,583.33 in PMI, and savings of $26,031.02 in interest. 

By paying this loan bi-weekly (every two weeks) instead of monthly it would mean an additional $17,462.97 saved in interest!

Obviously, if you can afford it a 15 year note is a better option. Or some people would say you should buy a house where you CAN afford a 15 year note. But I digress. A 200k loan assuming 0 down at 3.25% interest for 15 years with a property tax of 1.25% and PMI of .5% starting this month (Sept 2014) would be: 

Monthly payment: $1,613.67
Total interest paid: $49,377.42
Total Tax Paid: $37,500.00
Total PMI Paid: $3,583.33
Monthly PMI: 43 payments of $83.33 each
Total of 180 Payments: $290,460.76
Pay off Date: Aug, 2029
PMI Pay-Off Date: Apr, 2018



Have you taken the plunge and bought a house? What has worked best for your situation? Leave a comment!