Quote:
Originally Posted by Rathji
Of course it wont be worth the money you paid for it if you include interest, especially factoring in inflation.
Just ran a quick calculation on RBC's website. A 5 year term, $300k mortgage at 5% interest over 25 years will cost roughly $600k. (someone correct me if I am wrong), which means you pay twice what your house is worth, not counting the fact that you renew it a few times during that 25 years, and end up paying more in actual dollars, due to inflation.
How much inflation will happen in 25 years? Can't say for sure, but between 1985 and 2010, inflation alone would have turned a $300k home into a $600k home. (source).
So just on those calculations alone, it is pretty much impossible for a house to be worth more in inflation adjusted dollars once the mortgage is paid off. However, you did live in it (or rented it out) for those 25 years, so that is where the benefit comes in.
What do I know though, I am just a tech. |
That is one way of looking at it. I'm not really sure where or how that inflation index is calculated, since each geographic region has it's own variation of inflation. I'm also not too fond of looking to the past as to what has happened versus where are we going. Forecasting but being conservative about it.
Check this out using the
RBC tools
Take a $300,000 mortgage at 5% fixed for 25 years amortization and you would have paid $523,443 over that time span.
Then if inflation stays at 3% for that same period, in theory your home should now be worth $634,505.
Now if someone bought that same home at the height of home prices, lets say $500,000 with the same mortgage rate of 5% and same amortization period they would have paid $872,406 for the same house.