Welcome to Day 733 of our Wisdom-Trek, and thank you for joining me.
This is Guthrie Chamberlain, Your Guide to Wisdom
Home Sweet Home – Ask Gramps
Thank you for joining us for our 5 days per week wisdom and legacy building podcast. This is Day 733 of our trek time for our Philosophy Friday series. Each Friday we will ponder some of the basic truths and mysteries of life and how they can impact us in creating our living legacy. As we continue on this trek called life sometimes we have questions about life so our Friday trek is a time where we can “Ask Gramps.”
Gramps will answer questions that you would like to ask your dad or granddad, but for whatever reason this is not possible. No matter how old you are, I know that all of us would like the opportunity to ask Dad or Gramps questions about life in many areas. We will address areas such as finances, relationships, health/fitness, business/work, home repairs/renovations, seasons of life, spiritual/Biblical questions, and any other areas that come our way.
As your fellow sojourner and mentor on this trek that we call life, it is my goal to provide you with practical wisdom and advice about any area of life. It is crucial that I receive a constant flow of questions, so please submit your questions to email@example.com, send me a message at the bottom of any page on wisdom-trek.com, or text me at 740.350.5732. And I will answer your questions on our Friday podcast. I hope that this will become a highly interactive and informative time.
We are broadcasting from our studio at The Big House in Marietta, Ohio. When this episode is originally released, I will be in Mesa, Arizona, working with our partners on Phase II of the Mesa Townhome project. We are the general contractor for the funding group that is having the homes built, so we are able to see the progress from breaking ground through the final sale of the home. So I thought it would be appropriate to answer a question about home buying today.
“Hey Gramps, We are looking to buy a home, should I apply for a 15- or 30-year mortgage?”
Home Sweet Home
Regardless of whether you are a first time homebuyer or a current homeowner looking to move to a new home, the same principles should apply. Let me share some background thoughts first before answering the question because they are so crucial to your decision.
First off is to make sure that you do not look to buy more of a home than you need. It is not necessary to buy a home with four bedrooms and 4 bathrooms for a family of four, especially if your budget will make it very tight. It is nice to have spare rooms for company and other purposes, but the fact is if you have to pay several hundred dollars more per month for a larger home, then it may not be a wise investment.
Second, do you have adequate reserves for a down payment? Most lending institutions require 10-20% down, and that money is not supposed to be borrowed from any other sources, including family. If you are able to purchase a home that appraises for 20% higher than the selling price, sometimes the down payment is waived. If you do not have an adequate down payment, it would be best to wait until you do. There are also several hundred or thousands of dollars in closing fees that need to be considered. Never use up all of your reserves to make a down payment, leave at least 1 to 2 months of income in an emergency fund. Unexpected expenses happen to all of us.
If you have credit card debt or significant student loans, use your reserves to pay those off before investing in a home. The only exception is if the student loan interest rates are very low, which is not the case in most instances. The actual interest paid on credit card bills is usually much higher than what is stated, especially if you are only making minimum payments.
Assuming that you can still wisely move forward with a home purchase, what amount can you afford in your monthly budget without being strapped for cash? When you determine that, it is my strong recommendation to find a home that will fit your budget and still allow you to apply for a 15-year mortgage. It may not be your “dream home,” but you can choose to make any home a dream home if your family can be together and enjoy each day without the added financial pressure.
Here is an example of the difference between a 15-year and 30-year mortgage. Let’s say you have found an acceptable home and the selling price is $200,000.00. Also, let’s assume your credit score is decent, and you qualify for a 4.5% annual interest rate.
First, you will need between $20,000 and $40,000 for a down payment unless there is equity built in. For our example, let’s say that the amount borrowed is the same as the selling price.
A 30-year mortgage at 4.5% will equate to a monthly payment of about $1,015. This does not include insurance, property taxes, and in some instances monthly HOA fees which are usually added onto your monthly payment as escrow. Let’s say escrow adds another $300 to your payment for a total of $1,315 per month for housing. If you take 30 years to pay off your mortgage, you will have paid a total of $364,815.00 for a $200,000 home. $164,815.00 in interest, almost doubling the price of the home.
If on the other hand, you are able to obtain a 15-year mortgage at the same 4.5% interest rate your monthly payment will be $1530.00 plus $300.00 for escrow making your monthly payment $1830.00 or $515.00 more per month. I realize that is a substantial increase, but let’s look at the results. If you pay off your mortgage in 15 years, you will have paid a total of $275,397.58 for a $200,000.00 home. $75,397.58 in interest. You will save $89,417.00 in interest alone by having a 15-year mortgage. In addition to this, the amount of equity in your home will grow much faster each month as you are paying more principle, even in a flat housing market.
I do realize that there are many other factors, such as how rapidly home prices are increasing, current interest rates, what you may be currently paying for rent or other housing, and what your current financial situation is. Don’t forget, though, even on newer homes, there is always repair and upkeep that you do not have when renting. And this cost can be substantial.
Because of favorable tax laws and the fact that home values historically rise in every market over a long period of time, purchasing usually makes more sense than renting. Keep in mind, though, the less you borrow, the better. The shorter the mortgage length, the better. If you do not buy more house than you really need, are able to manage your monthly payments without straining your finances, a home purchase can be a good investment under most conditions.
All things considered though, it is better not to be in debt, but if you do borrow, borrow wisely. There is nothing more freeing than being completely out of debt, including your mortgage. Gramps has been blessed to be in this situation, and it is very freeing. Being debt free gives you options to make wise choices and provides more opportunity to further God’s work throughout the world. Gramps will wrap up his answer today with these wise teachings from God’s Word.
Proverbs 22:7 – Just as the rich rule the poor, so the borrower is servant to the lender.
Romans 13:8 – Owe nothing to anyone—except for your obligation to love one another. If you love your neighbor, you will fulfill the requirements of God’s law.
Next week we will have another question to “Ask Gramps.” Gramps will answer any questions you may have about life and will provide you with practical wisdom about any area of life. Please submit questions that you have to firstname.lastname@example.org, and Gramps will answer them on our Friday podcast with wisdom and philosophy that Gramps has gained over the years of experience and study.
I know you will find these insights interesting, practical, and profitable in living a rich and satisfying life. Our next trek is Mindshift Monday where we will help you live differently by thinking differently. So encourage your friends and family to join us and then come along on Monday for another day of our Wisdom-Trek, Creating a Legacy.
If you would like to listen to any of the past 732 daily treks or read the associated journals, they are all available at Wisdom-Trek.com. You can also subscribe through iTunes or Google Play, so that each day’s trek will be downloaded automatically.
Thank you for allowing me to be your guide, mentor, and most of all your friend as I serve you through the Wisdom-Trek podcast and journal.
As we take this trek of life together, let us always:
Live Abundantly (Fully)
Lend to others Generously
Lead with Integrity
Leave a Living Legacy Each Day
This is Guthrie Chamberlain reminding you to Keep Moving Forward, Enjoy Your Journey, and Create a Great Day Every Day!See you on Monday!