Do you have a sucker mortgage?
In the casino, they have sucker bets. Normally the table game odds are close to 50/50, but they add side bets that turn the odds in favor of casino, casino people call these side bets "sucker bets".
They have same thing in banking, there is mortgage and there is sucker mortgage. For instance, say, you buy a home worth $300k, you put down 20%. Now you have to choose a mortgage. Choices are: You pay $412,486.82 total (30 year) or you pay $298,331.27 total (15 year), these figures are without mandatory insurance, with current low mortgage rates (December 2016). With homeowners insurance it will be approximately $443k and $313k. The difference is $130k. Yet, most people go for sucker mortgage and pay these extra $130k.
I've asked people why they do it. Ten out of ten told me they went for 30 year mortgage because they couldn't afford 15 year ... So, in other words, they bought the sucker mortgage because they are suckers!
And dear friend, don't even try to tell me you are not a sucker if you pay $130k (43% of value of your purchase) more because you bought something you cannot afford.
January 2023. Fresh calculations with current higher interest rates.
Same home price $300k, same downpayment 20%. ZIP code 70774, credit score excellent.
30-year interest 6.625%, total mortgage payments $553,320. Including downpayment your home will cost you 104.4% over list price.
15-year interest 6.0%, total payments $364,500. Including downpayment your home will cost you 41.5% over list price.
You pay $188,820 more if you choose 30-year mortgage, it is 63% of home value you pay more.
The reason why I wrote this piece was I could not understand why people buy sucker mortgages. Only later I realized majority does not use habitually their own head
to do their own thinking, they fall for sales pitch of banks: "30-year mortgage is the best investment any family can do".
Nevertheless, buying home is the most expensive purchase these families will ever do. There is no excuse committing without thinking. You have to be a sucker to do it.
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