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When Do You Pay More Than The Cost?

As we continue in our First Time Buyer Education Series, please be sure to Never confuse the amount of your monthly payment with the actual cost of owning. A typical monthly payment includes principal, interest, taxes, insurance and, in some cases, mortgage insurance.

 Example:

$250,000 home

$4,000 per year taxes

$800 per year insurance

$200,000 30 Yr. Fixed Loan at 4%  =

The principal portion of the payment is not a cost; it’s a reduction of the loan balance. With each payment, you increase your equity by the same amount. For our example, the average principal installment for the first year is $294/month.

Owners who itemize can usually deduct the cost of interest and real estate taxes. For our example, an effective tax rate of 28% would reduce the cost by $279/month. (Avg. 1st yr. mo. interest paid of $661 + taxes of $333.33 x 28% = $279) Always consult with your tax advisor regarding your situation.

 Despite the ups and downs, over the last 50 years, annual nationwide appreciation averages more than 5%. Even using a more conservative rate of 3%, the increase in value represents $625/month.

 That brings us to:

Most of these benefits aren’t realized until you sell, so owners still have to be able to make the regular payment each month. Accumulating equity and earning appreciation take time. Consider the cost of maintenance and repairs, too. But when you think about what you would have paid in rent, it’s clear that owning a home can be a great way to build wealth.

And it’s also clear that the true cost is typically far less than what you might write on a check each month. Contact our team to get numbers specific to your purchase price range. 

Note, this scenario is just an example and not intended to reflect the current market or forecast for rates, prices, taxes or insurance. All of these factors are subject to continual change.

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