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You want that BEAUTIFUL DREAM HOME right? Of course you do. We all do. We close our eyes and we can see it. We can feel it. It’s our pillar of achievement. It’s our childhood ambition. It’s ALL OF OUR DREAMS!
AND unlike most things we desire so much, the reality of this dream is not too good to be true. In fact, it’s the opposite.
We approach the bank with knots in our stomach. We EXPECT DENIAL. We expect them to laugh at us and tell us to KEEP DREAMING.
And then it happens. They do laugh. But not at our dreams being too big. They laugh at how small we think.
“You can afford a bigger house you know.”
Afford they say. Ahhhh, the NERVE.
And, not only is the bank willing to loan us more, they are willing to loan it with as little as 5% down.
With interest rates less than 4%.
Hell, they’ll even let you ask for 6% from the seller to cover your fees.
Suddenly your $200K dream home just started looking like a SHED. It’s time to UP THE GAME. It’s time for our place at the table. It’s time for everyone to know that WE MEAN BUSINESS.
I know this sounds silly, but it’s true. Our psychology begins to change. We’re led to believe that we can afford something that we now DESIRE so much. And it’s not sad, it’s criminal. It’s criminal that we don’t understand the implications of our decisions. Because they will COST US A FORTUNE.
Here’s the math. The difference in the amount of interest you would pay to a bank on a 4% rate for a $300k loan over 30 years vs. 15 years is approximately $116K.
That’s JUST INTEREST and just the difference between a 15 year mortgage and a 30 year mortgage. That’s INSANE!
Now, for shits and giggles, let’s assume that you decide to go for the $400K home on a 30 year mortgage with 5% down instead of the $300K home on a 15 year mortgage with 20% down.
Assuming 4% interest on both and the same taxes, that decision will cost you $193,559 just in fees (i.e. interest)
Here’s the bankers sales pitch – Here’s how they sell us on the ability to “afford” it.
“Your monthly payment is almost the same and you can live in a house that you never imagined in your wildest dreams.”
Here’s the only problem. We absolutely CANNOT afford it. Monthly, perhaps. Over the span of our lives – NADA!
It doesn’t matter what our comfortable price point is. It may be $50K or $500K. It doesn’t matter because the minute that we begin to stretch that point and give into long term loans, less down payment, and higher price tags, we SACRIFICE TRUE WEALTH.
Because……We Literally Set Our Money On FIRE.
There is obviously a quality of life component that needs to be factored in. If getting a 30 year mortgage with 5% down is what it takes to get your family in a better area, then kudos to you. You’re more than likely a person made out of grit and I applaud your determination to provide for your family.
Whatever the circumstance, I’m not here to judge the decisions that you’ve made and I’m not here to give you Fluff. I’m here to give you small injections of critical insights that will unlock your potential.
Ask your banker lots of stupid questions and don’t make decisions until you fully understand the implications.
Have them show you an amortization schedule and ask them to explain it to you in detail.
Look at how much you are paying in interest vs. principle every month. Look at how much you are paying in interest in the first month, over 1 year, 5 years, etc.
Here is a link to a mortgage calculator that I use constantly when making real estate decisions.
I wish you the best of luck in all that you do. Keep distilling the FLUFF. Keep becoming a MASTER. My Mission is to give you very small injections of CRITICAL INSIGHTS that will help light you up. Like this post & Subscribe now to stay on the journey of amazingness.
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