Things were unfolding nicely for the Simpleton’s. They had rented their first home and gotten a second house putting 20% as a down payment, which made their mortgage very comfortable to pay.
They were moving fast paying off the first mortgage using the cash flow from their rental, plus some extra cash added to the loan’s principal. They couldn’t believe how fast you can see the life of your mortgage coming to an end by making these extra payments.
Most people don’t know that when they start making loan payments the first few years are mainly payments towards interest accrued by the loan. Doubling the principal payment in those first years is relatively easy because the principal payment is minimal. However, the effect on the life of the mortgage is like an atomic bomb! It wipes out thousands of dollars in interest. You might not be able to double your principal payment in the tenth year and after, but for sure you can afford it for the first few years and it’s well worth it.
Patrick and Joan had found a cute little ranch near their school district, which drastically reduced their commuting time and consequently their expenses in transportation. By having a quick commute home they also had more time to cook, hang out, and enjoy each other.
Now not even the most mind-numbing meeting could bother them because there was something else to life, other than work. There was THEM. Plans. Goals. There was passion between them again; a spark that had been dwindling, but now was lit and alive again.
The McCarthy’s also found a great rental property. By putting down more than 20% as a down payment they got the property to cash flow nicely from the beginning, helping them out with their savings and long term goals.
Both families were using the Personal Capital App to track their net worth progress and the forecast was terrific. They were making great progress although people at work wondered if they were struggling financially due to the changes observed. People were assuming that they were struggling financially because they had moved to a much smaller home.
Rarely people escape the trap of buying the bigger house they can possibly buy. Unfortunately, there are consequences to that:
However, the outcome is usually this:
- We pay more for the actual home by tens, sometimes hundreds of thousands.
- We pay more for the interest to finance the home by tens, sometimes hundreds of thousands.
- We pay more every year on the taxes that result from having a home that has a higher tax assessment.
- We pay more every year on home insurance premiums.
- We pay more every year to heat and cool the home.
- We pay more for all of the new furniture and decor to fill all of the lonely, empty, dust-collecting room we don’t use.
- We pay more for renovations and upgrades.
- We pay more for maintenance.
- We encourage home builders to continue to build more giant homes, with huge environmental consequences.
- We spend more time cleaning all of it.
- We overwork ourselves to pay for all of this.
Read full article: https://20somethingfinance.com/big-home-american-dream-disease/