Mortgages are scary
After looking at the condo mentioned in the previous post, I bought Home Buying for Dummies to educate myself on the basics of mortgages and all the other issues involved in buying a home (I didn’t see a Condo Buying for Dummies so I figured this was close enough ;-)).
Obviously, any kind of financial decision as big as this is a life altering event. Considering that moving to a new city and starting my first fulltime adult job are also both big life altering events I’m starting to think anything more complicated than renting an apartment to be too much.
The main issue in my mind is that rent is a sunk cost while a mortgage payment is an investment. That being said, I have no savings to make a down payment. That would mean I generally have a higher interest rate and most likely have a 30 year mortgage. The book has some interesting charts depicting the relationship between your mortgage payments over time and how much of your house you’ve actually payed for.
For a 30 year mortgage, the amount you pay in interest is staggering; in their example on a $150,000 house with a 7% interest rate on the 15 year mortgage and a 7.5% interest rate on the 30 year mortgage the former paid $74,000 in interest while the latter paid $174,000. You basically aren’t event paying down the original house cost until the last 5 to 10 years of the mortgage—the first 20 years are all interest (the numbers looked odd to me at first until I realized that interest drops as the principal is paid off).
All of this has made me think that it might be best to rent for a year or two (hell, why not three?) while saving for a down payment so that I can afford a 15 year mortgage. The main caveat the book mentions is that saving money for a down payment stops you from putting it into savings where you could avoid paying taxes taxes on it (until later, obviously) because you can’t really take out money from a retirement account for a down payment (they mention some weird exceptions, blah blah blah). Eh, one of those life opportunity costs.
Anyway, stuff to think about. I think I’ll still call the lender contact number given to me by the condo real estate lady just to see what they would even say to somebody like me :).
