A mortgage can be a useful and very helpful tool when looking to undertake the role of homeowner. The first home we bought, we utilized a mortgage to help us with our purchase. However, this experience taught us several valuable lessons, one of which was just how expensive a mortgage can be.
This second time around, we avoided a mortgage by purchasing a smaller, more affordable property in which to live. In the process, we recognized some truly significant savings.
Loan Origination Fees
There can be a lot of extra fees that come along with the undertaking of a mortgage. From application and appraisal fees, to processing and underwriting costs, such expenses can add up in a hurry.
When all was said and done, we saved over $2,000 in settlement charges on our recent purchase as compared to our first home for which we had a mortgage.
The greatest savings of all came by way of not having to pay interest on a mortgage. Depending upon the interest rate, amount of the loan, and amount a homebuyer puts down on a home; interest owed to a lender could be the costliest part of owing a home.
Say for example that we had put five percent down on our condominium and had taken out a 30-year fixed rate loan for the remainder of the balance at five percent interest a year. We would have paid over $124,000 in interest over the course of the loan or nearly double what the condo initially cost.
Loan Payoff Fees
It still seems amazing to me that when we sold our first home, we were charged to pay off our loan…but we were. While they weren't much, they were fees nonetheless, and between the $15 payoff quote and the $50 recording fee, these items totaled $65.
A Total Estimate
So let's say that we had gone with the 30-year fixed rate mortgage that I mentioned in the example above. And while we don't expect to spend the next 30 years in this location, were we to do so, if we add the mortgage interest over the term of the loan, to the loan origination fees and the loan payoff fees, we would have saved ourselves (not factoring in the tax effects of the mortgage interest deduction since we're no longer itemizing) over $126,000 by not taking on a mortgage.
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