Paying Off Your Mortgage | The Real Costs (Pt. 1)

The costs of home

Home ownership is an expensive endeavor (Photo: flickr.com)

Home ownership is an expensive endeavor (Photo: flickr.com)

For most people, the greatest monetary expense they will take on during their lifetime is that of buying a home. Despite the fact that mortgage costs are tremendous. From ubiquitous idiomatic expressions like “home is where the heart is” to classic exclamations the caliber of “He is happiest, be he king or peasant, who finds peace in his home” (from the famous German writer Johann Wolfgang von Goethe), we have been sold on the notion that the true way to find peace of mind and live a happy life is to invest oneself – and a large portion of one’s money – in building a home that can catch those rays of never-ending happiness like sunshine in a bottle… a 2,000-square-foot “bottle” made of wood, plaster, cement, nails and a sub-prime mortgage.

Your American Dream may vary

Aside from the boogeyman sub-prime reference, it all sounds exciting, doesn’t it? However, what many people forget when the excitement of buying/renting and settling into a new home or apartment sets in is the very real mortgage costs of paying for that brand new palace. Does your home suit you and your financial situation, or are you a stranger in a strange land, without the economic wherewithal to pay the bills and keep hold of your little slice of the “American Dream.”

Speaking of the “American Dream,” it’s interesting how the primary association most people make in their minds is material success. Novelist James Truslow Adams, who coined the popular phrase in his 1931 book “The Epic of America,” was hardly so specific. He referenced a belief in freedom that allows all citizens and residents of this country to achieve their personal goals through hard work. One of those could certainly be a big house on the hill or a beachfront manor, but for most people, aiming for the stars and missing still may land them on the Moon – where they can’t breathe, let alone afford staggering mortgage costs.

The numbers are truly frightening

Before you make the spur-of-the-moment leap into potential absurdity, where rational thought about how you’ll afford huge mortgage or rent payments is thrown out the window, strap yourself down and do some research. As of this moment (August 26, 2009), at the U.S. national average of 5.31 percent interest on a 30-year fixed-rate mortgage, a U.S. median-priced home of $210,100 actually costs $504,186. For a $250,000 mortgage where payments begin on Sept. 1 (as an example), that’s $254,816 in interest, $75,863 in property taxes, $30,345 in PMI and a $1,390 monthly mortgage payment. That doesn’t even take into account property tax and private mortgage insurance (PMI). Then you’re paying at least an additional $100,000 over the life of your 30-year fixed-rate mortgage. Add that and you’re looking at a total cost of over $600,000 for your home initially valued at $210,100.

Nearly half of the money you fork over to pay off your mortgage (which translates from Old French to “a pledge until death”) is used just to pay off the interest. This is certainly a lot more money that anyone has between their couch cushions and more than most can realistically afford in a nation where the average salary is somewhere around $35,000 per year and Federal Minimum Wage is $7.25 per hour. And keep in mind that the above rates are average. If you have less than perfect credit and are looking into a subprime hybrid mortgage – which has been oh so popular and oh so controversial lately – expect your interest rate to be much higher.

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