I have a confession to make. I live and work in New York City, but unless I get a major upgrade in pay, I don’t ever expect to own a home here. Why? Home prices are crazy here, but even worse than that, I think that 30 year mortgages are for suckers, and that’s the only way that I could ever be able to afford mortgage payments. Before you get all upset with me for talking down to you about your own mortgage situation, hear me out.
I’m 32 years old now. According to the website, Department of Numbers, the median home price in New York was $525,000 in October 2010. That’s more than half a million dollars. These days, in order to get a decent mortgage rate (unless it’s FHA ) and avoid private mortgage insurance you need to have about 20% to put down on the home. Add to that closing costs and taxes and I’m looking at a minimum of probably $115,000 that I have to show up with. If I were to live in a cardboard box and scam my way to eating every day and not pay one more dollar to any bills, avoid the IRS, and hitch-hike my way to work, I might be able to save that much in about 4 years.
Let’s assume that I’m willing to break a few laws and save that money. I would be staring down the barrel of 37 by the time I qualified for the mortgage and stepped foot in
my home. Let’s say that I could actually afford the payments on the 30 year mortgage. According to the Bills.com mortgage calculator to the right, if I have a 30 year mortgage for $420,000 at a rate of 5.5% (I’m assuming that interest rates will go up a bit by the time I save my money), I’m looking at monthly payments of $2,834.71. There is no way in hell that I could afford that, but let’s roll with it and assume that I can. I’m now stuck shelling out over $1,000,000 by the time I have paid off my mortgage for an original loan amount of $420,000! Holy cow Batman, I’ve been robbed.
But that’s not the only thing. If I get my mortgage at 37 and I’m lucky enough to make all of my payments on time, I’ll be 67 by the time that I finish paying it off. That’s convenient because the government says that someone my age can now retire at 67 and collect Social Security, if I live that long. But wait, 37 is a decent age to purchase a house isn’t it? It sure is. What if you’re 45? What about 50?
This is where I might lose some of you. I think that getting a 30 year mortgage when you are 40 and above is the absolute most crazy thing that you can do. I know that we are living longer but really, do you want to be 70 or older and still paying a mortgage? What are the odds that you are still making the same income at 70 that you are at 40? What are the odds that you don’t have any health problems that will suck up all of your money? Do you have kids? Those little beasts and their college costs are expensive, especially if they shop with the wallet of mom and dad. Have a spouse? What if you get divorced and have to split up your assets? Those are just a couple of things that can happen in 30 years. I can not assume that at 70 or older I will be able to pay that kind of a mortgage or that I won’t need some kind of mortgage help.
Now, before you send me hate mail, if you want a 30 year mortgage, by all means do what works for you. If you decide to get a 30-year mortgage then reduce the length later or pre-pay the mortgage, then more power to you. You do what works for you. It’s my understanding that the vast majority of people with a 30 year mortgage will probably take the entire time to pay it off, if they ever do.
Am I just crazy? Would you get a mortgage at 50? Tell me if you think that I’m wrong.