I will be soon in the market to buy my first house in the next 6 months. I can either try for a 30 year mortgage for 6% or a 40 year one for 7%. My wife and I are newly out of college and are looking for a house that is about $350,000 in our area in CA. Right now according to calculators, we qualify for a house that costs $240,000. Problem is that even crack houses cost more than that!
So I see that most of the first few years of payments go towards interest so after 5 years, if I decide to move, I won't really have that much equity built up.
Let's say that by going to the 40 year mortgage, I am able to save $100 a month on my payment. If I kept applying that $100 monthly savings towards principal, will I build equity quicker?
It will also be tougher for us making payments now but in a few years when our careers advance, things will get better.
Good idea? Any calculator anyone recommends?
2007-09-19 10:31:42 · 6 answers · asked by Anonymous in Business & Finance ➔ Renting & Real Estate
-I am trying for my CPA and my wife recently finished grad school and started working.
-I am not worried about foreclosure risks because in 3 years we should be making great money
-I am not considering moving in 5 years but because we are in the early part of our careers, there is a possibility that we need to move because of a great opportunity.
2007-09-19 10:58:55 · update #1
Robert, I have no idea what you wrote
2007-09-19 11:00:21 · update #2
My calculator says that if you borrow $200,000 @7% for a 40 year amortization, your payments are going to be $1,246. If you borrow $200,000 at 6% for 30 years, the payments are $1,194, It does not pay to increase the ength of your mortgage unless your payments become smaller. You have just formed a new family. Get your CPA (you may not pass all the parts the first time). Meanwhile you may decide that you do not like your present employer. Settle down, let the real estate market settle down (especially the California market), and then decide on what you are going to do. Oh yes, do the calculations. Do not believe what anyone tells you unless you have verified the numbers.
2007-09-19 12:00:01 · answer #1 · answered by Bibs 7 · 0⤊ 0⤋
While it's true that the more you put towards principle builds equity. However, if values do not increase over a period of years, then the only equity you realize is what you have paid extra. There is no magic formula that will make you ton's on equity in a short period of time. That happened 3 years ago, and it's why we are where we are in the market today. Plan for the future, think long term. Make a good solid investment in real estate. There are no quick bucks these days.
2007-09-19 10:40:31 · answer #2 · answered by Anonymous · 0⤊ 0⤋
You can refinance to any loan term that you want, but if the rate on the 40-year paper is around the market rate for 30-year paper when you're ready to refi, you'd make out better just by upping the amount of your payments and keeping the 40-year note. You can pay additional principal at any time, just include a note with your payment instructing them what to do with the extra money, i.e. apply it to the principal. This way, you avoid the cost of refinancing. If you are expecting to re-fi, just make sure that your loan doesn't have a pre-payment penalty or that you wait until it makes financial sense to re-fi even with the pre-payment penalty factored into the costs.
2016-05-18 22:01:00 · answer #3 · answered by Anonymous · 0⤊ 0⤋
If it were me...and I knew I was thinking that this is only a temporary house until 5 years down the road when I can afford a better home, I would get the 40 year mortgage and put the extra money in a high yield savings account. This way you are saving towards the down payment on the new home...
2007-09-19 10:42:45 · answer #4 · answered by Anonymous · 0⤊ 0⤋
will u accept a candid answer.?
or an answer that only reconfirms what u want to do?
both part of ? are dangerous for u and wife.
rent for next yr or 2 . save ur cash. live on 'real world' budget. pay off ur debts.
read 'total money makeover' visit daveramsey.com to learn what isn't taught in college. watch the housing market adjust downward next few yrs. u'll have cash - you work 2nd jobs? right.
don't buy more than u can chew.
spend ur first few yr s enjoying each other rather than fighting to keep an over priced mortgage.
remember last person in the job is often the first to be let go (jobless with mortgage).
you shouldn't buy now, later maybe.
2007-09-19 10:45:49 · answer #5 · answered by Anonymous · 0⤊ 0⤋
It is always better to go with a loan you can afford and make extra payments if you can, but you have to be disciplined. Seeing that extra money sitting there it is very tempting to use it for something else.
Although because the interest rate is 1% higher, you would need to pay about $200 more per month to pay it off in the 30 year time frame.
2014-03-25 22:31:57 · answer #6 · answered by UpAllNight 3 · 0⤊ 0⤋