Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
I often see people post asking if they should pay down a mortgage or their student loans/car/credit card. And often times a reply says something to the tune of pay down the credit card because the interest is +10% and the mortgage interest rate is 3% or whatever.
When I sign for a mortgage I get a % such as 3%, but I also get a % over the life of the loan, something like 40%. So if I pay the minimum payment every month for 30 years, the total % I will pay is 40%. I buy a house for 100k, I pay 140k.
Explain to me in simple terms why I should look at a mortgage as 3% and not 40%. Much appreciated.
Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
4y
@William Walker When you see an answer in any scenario, most of the time it's their personal experience. Even though you have same scenario with two different people it can't be same in financing habits. A knowledgable adviser will always look at your requirement and future financial goals. Paying a credit card of 10-15% interest rate and taking 3% interest rate mortgage for 30 years won't be always a right step for your financial goals. Posting a question in any form will give you general information but that will fit you need not always right.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
4y
@William Walker Because it is the Annual interest rate, applied to the Balance. Obviously, if you keep a balance for 30 years, as opposed to 5 years, you’ll pay more interest over the Life of the loan.
@William Walker Because it is the Annual interest rate, applied to the Balance. Obviously, if you keep a balance for 30 years, as opposed to 5 years, you’ll pay more interest over the Life of the loan.
Ok, think I got it
If I have a credit card balance of $12.2k and I only make the minimum payment I will eventually pay a total of 20k (at 9% interest). The total interest rate I pay on the credit card loan is 63%.