Tuesday, January 1, 2008


I know the concept of "no debt" is difficult for some to understand. Most people say "Well, you need a loan to buy a house." My response is always "No you don't!"

Here is the scenario. You want to buy a 200k house. If you get a 30 yr mortgage at 7% your payment is only 1330.60 but you end up paying a total of 279017.80 in interest. Ouch.

If you bump it down to a 15 yr at 7% your payment is 1797.66 (only 460 more), but interest paid is only 123578.18. WOW - less than half.

If you go further and do a 10 yr at 7%, the payment is 2322.17, but you only pay 78660.35 in interest. Seriously....that is awesome. Over 1/3 less in interest.

But let's say you go one step further and just save that 2322.17 in a great mutual fund at around 10% (some higher!) you could have the 200000 saved (while still paying tax on the dividends) after 5 yrs 10 months! Hello? Which one is better? 10 years of 5 years? The numbers don't lie. (Except don't forget to add in a little inflation)

Some people say that they get a mortgage loan because of the deductions. Stupid. If you just save the 2322.17 for the 5 years to pay for your house and then continue saving the 2322.17 for another 5 years....guess what? You'll have another 200k in savings. If your tax man is able to scrape up 200k in deductions from your mortgage......HE'S A CROOK!

I think we are all in denial about our spending habits. Maybe it's just easier to pay the 1300 each month and not think about the nearly 300k we just blew on interest.

1 comment:

Terrace Crawford said...

Hey, thanks for stopping by my blog. I can totally relate to you giving up sodas, I'm doing the same... as I'm trying to lose the weight in 08 (hey, that rhymes!). Cool post about finances. Wow! That will sure make you think.