Cash Flow Part 4

The second option is also a 30-Year option. This would be a 30-Year Mortgage Option w/ $100K down payment - This 30-year mortgage will cost me approx. $272K in today’s dollars in overall costs over 30 years (the $100K down payment, $100K in additional principal and $72K in interest). Essentially, I am trading $100K now for a $72K decrease in total interest payments over the life of the loan. I will be making monthly payments of $478 which is a more manageable amount than the $955 per month in the first option.

 As in the first option, the house would be worth approx. $700K in 30 years. No changes here. In addition, as this method of investigation is considering whether or not I should pay cash, it’s also important to look at the future value of the $100K (remember, I put $100K down so now I only have $100K to invest). If I was to take $100K and, instead of putting it towards the house, invest it in the stock market using a 10% rate of return, that $100K would end up as $1.6M in 30 years. Also, I would now have approx. $477 per month of additional money to invest ($955-$478).

 With some math this looks like it would be worth approx. $847K in 30 years. In review, I would be paying out $478 per month for 30 years and end up with stock with a value of $1.6M as well as the monthly investment that has grown to $847K and a house worth $700K. In total, this would be $3.14M. This seems to be a nice end result, but we will look at the last option in a later post.