What the banks forget to tell you . . .
Most of the time, banks and sales agents do not always give you the whole story when taking out a mortgage on a home. The amount of interest that you pay to the bank is pretty eye opening. For instance, on a 30-year mortgage of $200,000 at 5.5% interest, your monthly payment would be $1135.58. What this does not include is the monthly cost for property taxes, insurance, and maintenance which can easily cost an additional $200 – $300 per month depending on the value of your home.
Also, most individuals who purchase a home are not always well informed about the amount of principal that is being paid with their monthly mortgage payment. In this particular example, this person would pay $68,122 over the course of 5 years in mortgage payments but only $15,367 of this would be applied to the principal!! The other $52,755 goes entirely to INTEREST! The other $12,000 to $18,000 in real estate taxes, insurance, and maintenance is on top of the $52,755 over a 5 year period.
Although you do build equity when you buy a home, the first several years of a mortgage involve paying much more towards interest than towards the principal. See for yourself. Check out this mortgage payments calculator. You can input different scenarios and view your own amortization schedule. Just remember, this will not include taxes, insurance, maintenance costs (usually 1% of the value of the house per year), HOA fees, decorating fees, higher utility costs, etc.
Thank you for reading -Jennifer S. Moran