re: 1st mortage, is 4.5 a good rate on 30 yrs?

These mortgage rates are great, but the only real way to get a good deal on a house is to pay down the mortgage much quicker than 30 years.

I spend most of my time in New Orleans, this part varies by locale but here is my example.


I would argue anyone who tells me a house in New Orleans is a good investment is a moron. The total ownership cost of a house in New Orleans is a terrible investment. I did the math on the house that I rent part of when it sold recently. I also did similar calculations on condos I could purchase that are comparable to my rental. Here is a breakdown of my example house: When I say approx that means rounded number not a guess.

Sold for approx $1.7 million
Prop Taxes: approx $24,000/yr
Insurance: approx $28,000/yr plus windstorm risk exposure approx $100,000 (deductable)
Interest cost assuming 30yr and 20% down
$977,425.29
Taxes and Insurance assuming no tax inflation or premium inflation (obviously over conservative)
$1,560,000

So you're looking at a cost not including your principal investment ( $1.7 million) or maintenance/utilities/capital improvements of nearly $2.6 million. Add your principal and you get about $4.23 million in 30 yr costs. Remember now we simplified, taxes would go up, insurance would go up, often by a bigger number than inflation.

If home prices continue to rise by an average of 3.4% annually over the 30 years your house will be worth $4.6 million with a minimum outlay of $4.23 million. Once you add in maintenance/tax+insurance inflation/loss risk due to poor insurability it really is a terrible investment.

The 8% difference in projected value over costs won't even come close to covering upkeep costs, let alone make the downside risk tolerable.

When I looked at the numbers on 1-2 bedroom high end condos the numbers were actually even worse due to comparable rentals being so affordable.

Bottom line: Look at an amortization calculator, understand the real interest costs. Get a long loan if you need to, but manage your cashflow to pay down the debt quickly. Interest on a large loan is a cancer on your overall wealth. Ownership costs and purchase price are nowhere near the same thing.

And lastly since its tax season: The tax write off for interest argument is bullshite. Spending $100 in interest to get $25 or $30 back in taxes is never a good investment.

3.65 rate 15 year loan= $30,000 interest for every $100,000 borrowed

4.5 rate 30 year loan= $82,000 interest for every $100,000 borrowed