Why a 40 years Mortgage is a Terrible Option.
Accepting a 40 years mortgage in a home is a terrible option… I want to share my opinion and my experience, especially because I am a real estate developer with over 25 years in the industry.
I know that many people dream of owning their home… and to be very clear, I am not against homeownership at all… However, I am NOT OK with paying for a mortgage for 40 years.
Let’s do some numbers,
If you buy a $400,000 home today… Let’s say you put 3.5% down as a first-time home buyer, ($14,000)… your mortgage amount will be $386,000 and let’s set your interest rate at 7%.
Now, your monthly payment, principal and interest will be $2,568.07
In 30 years… will have paid $538,504.38 in total interest only… and a grand total of $924,504.35 in 360 payments.
But when and if you do it…
In 40 years, you will have paid $765,387.87 in total interest only… for a grand total of $1,151,387.87 in 480 payments on the same exact house.
It is mind-boggling how much money will go to your lender.
In other words, you will wake up every day for 40 years, sweat all day at work or at your business to bring money home and then, give all that money to your lender.
It doesn’t sound right to me… how about you?
Now, the question is: What to do about it?
The solution:
You can not accept those 40 years and do what others do… you need those years to produce enough money, so you and your family can have financial freedom.
You MUST figure out a different way to have your cake and eat it too.
You MUST figure out a more efficient way to make more money and own your home and be able to reduce those years of mortgage payments to 5- 7 years ideally.
You MUST learn how to invest in real estate so you can leverage yourself effectively.
It is possible. It is doable. It is totally achievable.
But, it is all up to you… you either learn how to do it or you work all your life to make the banks richer… and your family poorer.
In addition, you must also consider your current age, your retirement age, your current family members you are responsible for, your future vacations, your savings, and your willingness to learn a new way to earn money.
With the 40 years mortgage, your equity builds up way slower because less money goes towards your principal balance reduction.
Think it through very well before you commit to this suicidal financial proposal.
My suggestion and advice is to figure out how you will earn more money so you invest in rental properties that cashflow every month… and you can consistently pay down on your principal balance at a faster pace.
The more money you earn, the more money you can invest… and the more you invest, the more money you earn as passive income… and the cycle repeats.
Consider a 15 years mortgage instead.
The monthly payments will jump a bit higher, but you are saving thousands of dollars in interest money that you can keep for your retirement.
If you change the dynamic a bit…
With a 15 years mortgage, your monthly payment will be $3,235.78 and you can also add a 10% down payment, reducing your loan amount to $360,000
Further more, highly consider instead of making one monthly payment, you can switch to making bi-weekly payments.
Going bi-weekly saves you an additional $32,357.82 in interest alone that you can use to invest even more.
When you go to a 15 years mortgage schedule, you will pay $220,440.72 in total interest payments and a grand total of $582,440.72
So, from 40 years to 15 years… do the math!
$1,151,387.87 – $582,440.72 = $568,947.15
In conclusion,
Before you buy your home,
- Do your math… What is gonna cost you.
- Put at least 10% percent as a down payment.
- Get the lowest possible interest rate.
- Get on a 15 years mortgage schedule.
- Go bi-weekly to pay down your debt and build equity faster.
- Invest in rental properties that cashflow and use your excess money to reduce your home mortgage and to buy more rentals.
- Commit yourself to own at least 10 properties so you always have money coming in every month as passive income.
I trust that all of what I shared above helps you see the numbers, the math and the reality that you might fall for.
As interest rates and home prices have increased, the 40 years mortgage is only a band-aid created by the government to help homeowners feel better about their payments and pretend that they are making affordability a real thing.
But that is far from the truth, it is a bigger financial trap to keep you slaved, broke and make the banks more money.
As a developer myself, I am currently building my own rental portfolio in Florida.
Feel free to reach out directly if you want to discuss how we can help you achieve your real estate goals… my number is 786.663.0514 and I will be happy to help you!
Talk soon!
