In 1994, Mortgage 1 helped a young couple purchase their first house. They were one of our first customers. Three years later, we helped them buy their second home. The couple emailed us recently. They remain Mortgage 1 customers and are just a few months away from paying off their mortgage.
Out of curiosity, they tallied their cost of home ownership over the past two decades. When they compared that to the current value, they were dismayed. The current estimated selling price of the home is slightly lower than the sum total of what they have put into it over the years. “What’s the benefit of even owning a house?” they wondered.
Over the course of several emails, we helped them look at the numbers differently so they could appreciate the true long-term value of home ownership. With this new understanding, they are looking forward to being mortgage-free and living happily ever after!
Here is their story, along with insights from several Mortgage 1 loan officers.
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Here are the financial numbers our friends provided for the $200,000 home they purchased in 1997:
In their own words, here is the backstory on these numbers.
What our friends told us: “In 1997, we had just had our third child. We were looking for a house and neighborhood where our kids could grow up. While $200,000 was a stretch for us, we felt we could afford it over the long term. We were still relatively young and had two income-earners.”
What our friends told us: “Our first home had appreciated, so we had money for a down payment on the second home. We had a targeted monthly payment we wanted to be under, so we put down enough money to stay under that target price. That still left us with money in savings for emergencies and repairs.”
What our friends told us: “In 1997, our mortgage was a 30-year fixed rate loan at over 8%. We have since refinanced twice. The last time, in 2012, was into a 15-year fixed loan at 3.5%. We’ve always made extra payments against the principal each month, which allowed us to pay off the loan a couple years early.”
What our friends told us: “Where we live we pay village taxes for things like police and trash pickup and township taxes for schools and fire. Our insurance is full replacement value. We have never paid escrow. We always pay those bills on our own so we can see what they actually cost.”
What our friends told us: “The home we bought was older, but the prior owners had just put on an addition, so that part of the house was brand new. While the rest of the house wasn’t a fixer upper, it needed some work. Not all at once but over the course of 24 years we have upgraded the kitchen and two bathrooms and finished the basement, along with other minor upgrades.”
What our friends told us: “A real estate friend says we could get $375,000 for our house if we put it up for sale. She said with the shortage of houses on the market right now, we would sell quickly for that asking price.”
To put our long-time clients’ minds at ease and help them appreciate the benefits of home ownership, we collected and shared insights from several Mortgage 1 loan officers. Here’s what they had to say.
“If you just look at the raw numbers, your home has nearly doubled in price. That equity is yours to keep,” says Mortgage 1 loan officer Doug Engelhardt. “Once your mortgage is paid off, your house is an asset you own outright. Nobody can take that away from you. Aside from taxes, insurance and maintenance, your housing costs will be zero. In your golden years, if you decide to move into a retirement home, your home will be a valuable asset you can use to cover the cost.”
“If you just look at the raw numbers, your home has nearly doubled in price. That equity is yours to keep. Once your mortgage is paid off, your house is an asset you own outright. Nobody can take that away from you.”
– Doug Engelhardt, Mortgage 1 Loan Officer
“You have to live somewhere,” says Mortgage 1 loan officer Heidi Gates. “If you did not own a home, you would be renting. A rental home or apartment to accommodate two adults and three children would probably cost $1,500 per month. Over 24 years, to this point in your life, that cost would have been $432,000 – nearly the total value of all your expenses – with nothing to show for it.”
Amy Hendrickson had this reassuring advice: “Now that you are paid off, you will no longer have the big expense of a monthly mortgage payment. If you did not own a home but instead rented, you would still be making monthly payments for another 30 years or so. At $1,500 per month, that would be another $540,000 in living costs. Add that to what you would have already paid in rent and over your lifetime you would pay nearly one million dollars for housing – far less than what you’ve paid by owning.”
“If you did not own a home but instead rented, over your lifetime you would pay nearly one million dollars for housing.”
– Amy Hendrickson, Mortgage 1 Loan Officer
From Scott Nadeau: “Up until 2017, mortgage interest and taxes were itemized deductions on federal taxes. This reduced your taxes owed. Assuming a typical income tax rate, the true cost of your property taxes are approximately $50,000 and the true cost of interest on the mortgage is $55,000. This brings your actual expenses down to $385,000, much closer to your resale value.”
“When you purchase a house, the payments you make are an investment in yourself, your future, and your financial well-being. You are paying yourself instead of some other person and making them wealthy. Financially, you are ahead in life by having owned a home,” says Nadeau.
“When you purchase a house, the payments you make are an investment in yourself, your future, and your financial well-being. You are paying yourself instead of some other person.“
– Scott Nadeau, Mortgage 1 Loan Officer
“With a home, you get a multitude of immeasurable benefits. You get to enjoy your own home, your community, and being the king of your own castle,” says Gates. “You also get to make your own decisions regarding design and style. You get to host holidays and family get-togethers and create memories that last a lifetime. You can’t put a dollar amount on that.”
“With a home, you get a multitude of immeasurable benefits. You get to host holidays and family get-togethers and create memories that last a lifetime. You can’t put a dollar amount on that.”
– Heidi Gates, Mortgage 1 Loan Officer
“Home ownership pays big dividends,” says Hendrickson. “Over the long term, for all the measurable and immeasurable benefits it provides, owning a home is one of the best decisions you can make.”