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Our story begins
with two brothers, each earning $84,000 a year.
They each have $40,000 in savings and both are buying $200,000
homes.
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| Brother
"A"
Believes in "The Old Way" - paying off the mortgage as soon as possible
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Brother
"B"
Believes in "The New Way" - carrying a big,
long mortgage and never paying it off
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- 15-year mortgage
at 5.75% (5.91% APR)
- $40,000 big
down payment
- $0 left to
invest
- $1,329 monthly
payment
(Interest portion of payment is tax-deductible)2,3,4,5,6
- $1,188 average
monthly net after-tax cost2,4,5
- Send $100 monthly
to lender in effort to eliminate mortgage
sooner
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- 30-year interest-only
loan at 6.125% (7.85% APR1)
- $10,000 small
down payment
- $30,000 remaining
to invest
- $970 monthly
payment
(Interest portion of payment is tax-deductible)2,3,4,5,6
- $660monthly
net after-tax cost2
- Adds $100 monthly
to investments, plus $528 saved from lower
mortgage payment, where account earns 8% rate
of return3
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Who
made the right decision?
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These hypothetical examples are for illustrative purposes only. Plans vary based on the needs and wants of the customer. Illustrated interest rates are based upon the interest rates compiled by Fannie Mae for January 2008. Private mortgage insurance would likely be required. However, this cost is not included in the examples above for illustrative purposes.
1. This example is based on a Fannie Mae Interest First loan. Interest only for 10 years, then the first loan converts to a 20-year amortizing loan on the 10th anniversary with a monthly payment of $1,375.
2. Assumes combined federal/state income tax rate of 32%. Assumes that interest paid is fully deductible.
3. Assumes 8% rate of return. Rate of return may vary based on type of investment.
4. The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for federal income tax purpose.
5. The consumer should consult a tax advisor for further information about the deductibility of interest and charges.
6. Monthly payment amount does not include homeowner's insurance or property taxes.
This is not a solicitation or offer for the purchase of any product. Payments do not include amounts for taxes, insurance or any other products. Rates could change or be unavailable at the time of commitment or closing |
