We seem to have come full circle in the past ten years or so. The pipe dream of being a millionaire by virtue of owning a home – any home – is stoking unrealistic fantasies once again.
But, before we get carried away, here is a story about home ownership that might cause you to question the potential reality of that dream.
The house was built in 2007, almost concurrent with the peak in froth and expectation surrounding residential real estate at that time.
The purchase price for house and lot totaled more than one million dollars. The new owner lived in a neighboring state and planned to use it as a sort of second residence/’play-cation’ home. But let’s be frank. It was an investment. In a market that was hotter than the fires of Hell.
Since it was a custom home in a gated community, there were many upgrades. The total cost was closer to $1.1 million. After laying out a cool $250k, the balance of $850,000.00 was financed with a 30-year mortgage, interest-only payments for the first ten years at 3.75%. Cheap and easy. Are we millionaires yet?
Fast forward ten years – late 2017; the end of the ten-year period for interest-only payments. And what a ten years it has been!
Foreclosures all around, wildly fluctuating house values, slow, lackluster economic conditions. Survival of the fittest?
I wonder what the new mortgage payment will be for the next twenty years. Shouldn’t be a problem. Interest rates are at the same levels as when our ‘new millionaire’ originally financed his stake in perpetual profits. A quarter to one-half percent more won’t make much difference.
And it doesn’t. But something else does.
“What!? My projected new payment is how much!? But that is double my current payment!! And the change in interest rates is only one-quarter of one percent! How can that be?? There must be some mistake!â€
But there isn’t. The current payment of $2656.00 (interest only) per month will be replaced by a new fixed payment of $5150.00 (principal and interest) per month.
