My girlfriend and I are spit-balling the idea of buying a house. We've heard pros and cons for mortgages; you're putting your money into an investment vs you're paying far more than you anticipate due to the interest involved. But we're very number oriented! I think there's merit to both sides, but I'd like to find the right balance.
Below I've looked at three different situations. Where we buy 300k house with a mortgage...
- at 3.6%, 20% down, over 25 years.
- at 3.6%, 80% down, over 10 years, saving $4000/mo.
- at 3.6%, 80% down, over 10 years, saving $2000/mo
Home price: 300k 300k 300k Down payment: 20% 80% 80% Loan Amount: 240k 60k 60k Loan term: 25y 10y 10y Interest rate: 3.6% 3.6% 3.6% Interest Total: 123k 11.5k 11.5k Years Renting: 0 5y 10y Rent Cost: 0 1.5k 1.5k Rent*: 0 90k 180k Property Tax/y: 2.7k 2.7k 2.7k P tax duration: 25y 20y 15y P tax total: 67.5k 54k 40.5k Total payment: 491k 456k 532k Time b4 owning: 25y 15y 20y
As you can see, if we can save 4000/mo (~40% income) over 5 years while renting at $1500/mo, we'd save about 35k and pay off our house 10 years earlier. But if we reduce saving by 2000/mo we now end up paying more than the first instance, just in a shorter time. However, we don't have to deal with house maintenance and other associated costs for a longer duration, and we don't take into account any interest accrued in that time, either.
I'm trying to keep some sort of basics down, as the further you dive in the more complicated the math turns out. Things I will be ignoring: Utilities, house/renters insurance, and maintenance, as I think these things should be budgeted for along with personal maintenance (dental, medical, food, etc).
I was also not going to account for inflation or investments as I don't understand the math and premiums involved sufficiently. I've since modified the above table to take into account property tax in my area, and made up for the differences in time-frames with the cost between finishing the mortgage and the longest term column. I don't know anything around tax benefits or being able to make 'lump sum' deposits on a long-term mortgage, etc., so I don't know how to calculated that into this maths.
I'm primarily interested in maximizing net savings while minimizing the time before being mortgage free.
My question is:
To minimize mortgage time, and maximize net savings, at what point would a mortgage be more beneficial than renting?
Interest calculations were done through this web calculator.