Pros and cons of a house vs. condo?

[Visceral]

I disagree... First of all, I do plan on living here longer than 5 years. This may be my first home, but is most certantly isn't a starter home. Making a 30 year mortgage into a 15 or 20 year mortgage by simply adding a 100 a month is always a good idea.

Most of the books I've read about this say its not smart to pay extra on your house, especially if you have other non-tax deductible debt. You are essentially trying to end your tax deduction sooner.

 

[chperplt]

run that one by your tax guy or accountant. Thats crazy!!

I did... and since we don't plan on moving, we will be saving thousands of dollars in interest.

An additional $100 per month will save me just over $40,000 in interest and cut my 30 year to a 20 year. That's just $100 extra per month. If I invested $1200 per year for 20 years, you're telling me that the $24,000 investment will absolutely, guaranteed, do better than the $40,000 + I'm saving myself?

My 20 year old brother in law was in town this past weekend. You sound very much like him. Only one answer and it has to be yours.

 

[chperplt]

You are essentially trying to end your tax deduction sooner.

Your tax deduction is on interest paid. Take a look at an amortization schedule for a typical 30 year loan. See where your monthly interest payment goes from the majority of the loan payment to very small part of the payment.

 

[bart]

I work in the real estate industry, specifically a mortgage broker.

First a note to Chperplt: You can invest that $100 a month at 5% per year and in 20 years you will have $41,103. If you are smart and get 8%, that money will be $58,900, at 12% it will be $98,926. So your 20 year old brother in law was right, unless you make some pretty pitiful investment decisions, and I am not even counting the tax savings you give up by paying off your mortgage first. You would do well to seek him out for financial advice in the future.

1) I can tell you that condos are never going to appreciate as fast as a single family residence (SFR) with VERY few exceptions. They also stay on the market longer in all markets except NYC, SF and LA. Generally what you pay in an association fee will pay for a lawn maintenance co.

2) Loans on condos and townhomes are riskier than SFRs, and as such command higher interest rates, sometimes as much as a half a point. The association rules are generally reviewed by the underwriter to evaluate this risk.

3) You are much better off paying off your higher interest loans (read credit cards and cars) than making extra payments on your house. Your mortgage will most likely be your lowest interest debt (except a 0% car loan) due to the fact the interest is tax deductible. The effective rate of interest is your interest rate times (1 minus your marginal tax rate). Pay off anything else that is higher than that effective rate first.

4) Best of luck on your purchase. When you go to secure your loan, pay the most attention to the Truth in Lending statement. The loan officer will try to brush over it, but the APR on that document is the true cost of the money. If it is significantly different than your quoted rate, you are getting screwed on fees. I cannot stress this enough. That is the real number, everything else is hogwash. They will do all they can to convince you otherwise, but don't fall for it.

 

[wil]

Bart- Since you are in the know- what resells better, 3 or 4 bedroom? Looking to build in a few months when our Townhome closes early Feb. Thanks

 

[labbats]

Ben Franklin and his compound interest theories win again.

Don't forget that you get a return on the interest of your interest. At 10% a year, let's say you invest $1000. After a year you have $1100. The next year, you will have $1210 due to compound interest rather than $1200 and so on ad infinitum. And that little bit is what makes all the difference when compounded over a 20 year cycle or a lifetime of savings.

Now if I could just pay off all my loans and start investing $300 a month at 10% interest, I'd be a millionaire by 60!

After five years of that I'd have $24176.20 instead of a zero interest amount of $18000.

After ten years I'd have $63112.21 instead of a zero interest amount of $36000.

*** Sorry, I got bored and had a calculator handy ***

 

[bart]

what resells better, 3 or 4 bedroom?

Honestly, that is hard to say. What really sells is location. Buy in the best location you can afford, and look for the cheapest house on the block, that is what sells. Good Luck.

 

[Gulfstream 200]

I agree. LOCATION sells. which seems to bring in low tax rates and good schools. all go hand in hand but - of course - thee all come with higher price tags!

3 or 4 bedroom? I think they sell equally well...but DONT add a 4th bedroom and plan on getting your money back. Only things that give any return are kitchens and bathrooms. Worst investments - swimming pools.

chperplt - of course your finances are not my business...but was your accountant the same guy who sold you the 30 yr mortgage?? you gotta fire any accountant the tells you to pay extra on a 30 yr mortgage.
If you want to save the "thousands" you think you are - get a 15 yr loan and beat them all...

anyways - I am done with the unwanted advice....

 

[bart]

Good point G200: you will get a 1/4 to a 1/2 point better rate in a stable rate environment with a 15 yr loan vs a 30.