With the introduction of the 40 year mortgage in Canada, people who couldn't afford a home before can now own a home due to lower monthly payments. 

For example, a $200,000 mortgage @ 6% over 25 years would cost approximately $1280 / month.  Over 40 years, the payments would be $1090, or a difference of $200/month. 

The biggest difference however, is not with the monthly payment, but with the total interest paid over the term.  The 25 year mortgage would result in the total interest of $184,000 but the 40 year mortgage would result in a staggering $323,000. 

With the huge difference in total interest paid over the term, one would think that it would never make sense to go with a 40 year term.  Hold on though, there are advantages and disadvantages of the 40 year mortgage.

The Advantages:

  • Lower monthly payments so that your cash flow is better.
  • Might be a decent mortgage choice if you plan on moving in the near future.  You'll get the cash flow now and the longer term won't matter much when you sell.

The Disadvantages:

  • As stated above the total interest paid for a 40 year term compared to 25 can be drastic.
  • If you plan on living in the house for the long term, then 40 yrs of interest can be a wealth killer.

Final Thoughts:

If you can afford it, I'm an advocate of lower amortization mortgages as longer terms result in drastically higher interest.  However, if you need to go with the 40 year amortization for the cash flow, I would suggest that you take any extra money during the year and put it down on the mortgage as that will help decrease the interest burden in the long term. 

In my opinion though, if you can't afford a 25 year mortgage on the home that you want, then the home is too expensive.

For those of you who tend to be more literal, the photo is meant to be sarcastic. 

Photo courtesy of Mike Licht

84 Comments

  1. nobleea on February 21, 2008 at 5:14 pm

    Guys, interesting discussion you have going on.

    But I have one question…the ‘rule of thumb’ of 2-3 times the household salary should be the house value…Wouldn’t it be more appropriate to have the rule of thumb for the MORTGAGE value instead? If a guy received $400K inheritence or money in the lottery, but they only made 40K a year….

    Surely there must be some accounting for equity built up in homes? Obviously, it’s a rule of thumb for new buyers. But to say that everyone making under a certain amount has trouble making payments assumes that everyone bought this year. If, for example, a family making only 50K/yr bought before the runup in prices in Alberta, they could easily afford a larger house now due to the massive equity in their home.

  2. George on February 21, 2008 at 5:18 pm

    Telly: I’m not assuming anything – we’re just making a comparison between the average household income (and, let’s face it, most households nowadays have two earners) and the average cost of a house.

    Nobleea: Point well taken. The reason that housing prices can be sustainable (for some period of time, at least) at levels several times greater than the average household income is that most homeowners are NOT buying a home every year.

    The problems will come up when enough people try to “cash out” on their home equity. When that happens, housing prices will fall back to a more reasonable level.

  3. George on February 21, 2008 at 5:24 pm

    Telly writes: “only households that make ~$100k average income are those with 3 or more earners.”

    This is one of the difficulties in looking at averages. Yes, it’s true that you need three income earners for the “average” household to have income above $100k.

    Thing is, there are plenty of two-income households that make above $100k, but the average is somewhat lower because most households have one spouse (usually the male) who earns a high salary, and one spouse (usually the female) who earns a lower salary.

    In any event, the bottom-line point that I think we can all agree on is that housing costs have risen far faster than average incomes, and at some point something will give. Whether prices will plummet in a short period of time, or simply stay stable for a decade or two, remains to be seen. I think everybody agrees that double-digit increases in housing values simply aren’t sustainable over a long period of time.

    Over long stretches of time (several decades), real estate prices haven’t risen much faster than the rate of inflation.

  4. telly on February 21, 2008 at 6:38 pm

    George, I totally agree with you and the points made above (equity built up in homes, amount of down payment saved, etc.) mean that we can’t simply use statistics 100% of the time to determine affordability, other issues come into play.

    The recent home value increases are definitely not sustainable and we’re seeing how that’s panning out in many countries. It just worries me that young couples feel the need to “buy now before housing becomes unaffordable…they’re not making any more land…”, even if that means a 40 year mortgage. Owing more on your mortgage than you have equity in your house is not a good position to be in, especially if interest rates rise.

    I think lenders need to add a disclaimer to 40 year mortgages instead of encouraging their use in far too many cases.

  5. AmateurRealEstate on February 21, 2008 at 7:12 pm

    I agree with James, that a 40-yr AM is excellent for rentals. It considerably increases cash flow, the interest is a 100% tax write-off (assuming the structure is a 100% rental), and if you really want to pay it off in 25 years then you can just pay more per period (if you have apply the required discipline). I am considering moving some of my rentals over to 40-yr AMs, resulting in somewhere along the lines of a 30% cash flow increase. Not bad for changing a single variable in the equation! Note that I have not considered the cost of breaking my current mortgages yet, so this may be prohibitive, but it’s on my to-do list to look at it seriously.

    — Pete

  6. Dividendgrowth on February 22, 2008 at 4:17 pm

    Jason from mymoneyblog had an interesting article on long-term versus short-term mortgages. I liked his graph.( i like charts in general )

    http://www.mymoneyblog.com/archives/2008/02/mortgages-monthly-payments-vs-loan-term-length.html

  7. Sunday Roundup on February 24, 2008 at 3:05 pm

    […] on “Worry Free Investing” which takes a too conservative look at retirement planning. Million Dollar Journey asks if 40 year mortgages are a good idea. Cash Money Life posted about a moral choice that he made […]

  8. Weekend Links - Napa Treat Edition on February 24, 2008 at 5:31 pm

    […] Dollar Journey asks whether a 40 Year mortgage is a good idea. My thought is that it matters what the interest rate is. I’ll happy take a 60-year mortgage […]

  9. Gates VP on February 25, 2008 at 4:09 am

    Wow guys, that’s a lot of data there, I’m going to chime in with Tim here and say that prices are currently “too high” for the long-term. Not “going to crash the markets high”, just too.

    nobleea brings up a neat point: If, for example, a family making only 50K/yr bought before the runup in prices in Alberta, they could easily afford a larger house now due to the massive equity in their home.

    But I think that you kind of have to ignore those little “humps” b/c that’s not a long-term model. But that goes right back to traciatim’s data. Sure, some people “made a killing” selling homes in Edmonton, but I know three people who just moved out last month (co-workers) and the selling process has been a hassle.

    However, your comment does bring up a great point that I heard elsewhere: the median family income does not buy the median family household, of course, families with sub-median incomes typically don’t buy homes at all.

    Here’s my personal gauge. Take 2 20-somethings one of which is a professional (say 27), if these people can’t afford a house, then the prices are probably too high. Edmonton right now is a great example of this concept. I had a professional career, my wife was working part-time to full-time with the City, but there was no way we could afford a house. Or at least not a house and a car (heck we rented and lived without a car). Don’t get me wrong, lots of people were trying to make it happen, but it wasn’t working.

    So why is this 27-year old marker important? B/c these are the people moving into the new houses. Everyone “established” already has a place, but that place isn’t “worth” anything unless there’s someone there to buy it. If young couples can’t afford to get into new houses, then who’s going to buy more houses? Young couples may be able to hold off for a year or two, but if you’re in a committed relationship with good jobs and you can’t afford the extra space your kids require, you’re either going to need a raise or you’re going to have to leave.

  10. George on February 25, 2008 at 9:51 am

    Gates: You left out one option for the 27-year old couple: offer less for the house you want to buy. In Edmonton at the moment, prices are declining (or, at the very least, levelling off).

    I know somebody who bought a home in April 2007 for $400k (at the height of the market). They tried to flip the house six months later for $550k. Needless to say, they still own the house; it’d probably sell now for around $400k or less, meaning that selling the house means taking a hefty loss, especially factoring for real estate commissions.

  11. Brian Poncelet, CFP on February 25, 2008 at 10:15 am

    Hello MJ,

    If you like a 40 year mortgage then you will love a line of credit! For investments the 40 year mortgage is good, but buying a house even in Vancouver, this is like renting.
    Yes, I know real estate will never go down, but if it goes down like in the early 80’s you could have a mortgage worth more than the house!

    regards,

    Brian

  12. […] 40 Year Mortgage -A Good Idea? […]

  13. yyj on February 29, 2008 at 7:52 pm

    I think 40 year AM is an excellent option. I just checked with the big banks and all of them allow double-up prepayments and allow you to make lumpsome payments 10-25% annually. If a person is discipline enough, and make double-up prepayments on all payments, it’s like having a 20 year AM. It gives you the flexibility. You can decide to pay less, or more.

  14. George on February 29, 2008 at 11:30 pm

    yyj: The vital part of your comment is where you say that a person must be disciplined. Most people aren’t – they pay the basic payment of their mortgage and nothing more.

    Also, the “big banks” are usually poor choices for a mortgage – in almost every case, the rates they offer are higher than the alternatives. We used to have our mortgage with RBC, but saved about 0.4% when we switched to another lender through the assistance of a mortgage broker.

    The broker we used was Melanie McLister, who writes for the Canadian Mortgage Trends blog (www.canadianmortgagetrends.com) – her service was excellent.

  15. yyj on March 1, 2008 at 7:29 am

    I guess for the people that aren’t disciplined, having a mortgage may not be a good thing at all. After all, the pay check may go to something else other than making regular mortgage payment. For the non-disciplined ones, a good way is to set up pre-authorized (double-up) payment ?

    From other blogs, I see some people doing this. They obtain the best available rate through a mortgage broker. And then they bring the paperwork to their “big bank” home branch. Most times they will be able to match. Because the banks don’t have to pay commission to the broker. But I do think that this is not too ethical though.

  16. George on March 1, 2008 at 11:24 am

    Most people are disciplined enough to pay the basic mortgage payment – they know that not paying that bill will result in their house being repossessed. Of course, that discipline doesn’t usually extend to making extra payments.

    I once had somebody tell me that a mortgage payment is like background noise – it’s there, but you do your best not to notice it. You also don’t bother trying to get rid of it, since it blends in after a while.

    I went to our bank and wanted to see if they would match the broker’s best rate, but they refused. Accordingly, my business went elsewhere and I’m happy with the switch.

  17. Mike on March 3, 2008 at 12:50 am

    I got an offer for one of these here in the States. It was a 40 yr refi through Countrywide Mortgage…

    I have to say, I considered it for a minute to free up monthly cashflow toward the other, higher interest debts, but I became reluctant to act on it when I figured what 10 more years of interest would cost me.

  18. newcanadian on March 18, 2008 at 5:13 pm

    I wonder why nobody mention that when you are renting, especially in places like Calgary you waste your money ( means rent aprx. equals mortgage ). An also that if you have family, you have to live in decent place, so that is why 40 years AM, it is helpful

  19. George on March 18, 2008 at 6:53 pm

    newcanadian: Renting a home is not “wasting” money. Neither is buying food or clothing. Shelter is a necessity, and renting is one way to obtain that shelter.

    It’s also not fair to say that rent approximately equals the cost of a mortgage. If you have a mortgage, you also have to pay property taxes, utilities, repairs, and maintenance. Some or all of these items are included in most rent payments.

    If you’re getting a 40-year (or longer) mortgage, you’re effectively paying rent to the bank instead of to a landlord. Except that you may be in a very bad situation if your home’s value drops and you end up owing more money on the mortgage than the home is worth.

  20. Gates VP on March 18, 2008 at 8:06 pm

    newcanadian: I wonder why nobody mention that when you are renting, especially in places like Calgary you waste your money ( means rent aprx. equals mortgage )

    Because this is patently false and one of the myths many of us are trying to dispel.

    Total Cost of Home Ownership:
    Mortgage + Maintenance + Utilities + Property Taxes + HOA/Condo Fees (if applicable) + Additional Property Insurance + Lack of Mobility + Your Time

    If Rent ~ Mortgage, then it’s quite likely that the Mortgage is more expensive not less. Paying $1730 for a mortgage over 40 years (@ 6.5%, 5-year rates), gives you about 300k in house (we’ll assume a 30k down), which gives you a starting place in Calgary right now.

    So now we start adding:
    Maintenance is estimated at 1.5 to 4% of your purchase price per year. Here’s a great list of stuff that breaks. Given the cost of labour in Calgary, let’s go with 2% = $6600 / year = $550 / month. Even if you’re handy and can keep that down, that’s still $275 / month. Obv. it’s not every month, but it averages out to that.

    Utilities, maybe it’s a wash if, so we’ll just say zero, but apartment renters often pay less than condo owners.

    Property Taxes: right now in Calgary this is about $200 ($2400 / year), the average number for Winnipeg homes is $3600+! Expect that number to go up as Calgary is squeezed by increased labour costs.

    Additional property insurance: $50 / month.

    Lack of Mobility: (depends on career) If you’re living in a factory town, your home could become worthless overnight. If you’re on the fifth year of a mortgage and your dream job comes up somewhere, you either have to rent your place or throw your money away.

    Heck, on the 5th year of your 40-year mortgage you’ll still owe 296k on the house! That’s right, you’ll have paid 102k over five years + all of these other things and you’ll still owe 296k on the house!

    Your Time: Owning a home definitely takes time. It’s far less time consuming to write a note to your landlord (A/C not working) than it is to find someone to fix the A/C.

    So breaking this down, monthly cost to own =
    $1700 +
    275 +
    200 +
    50 =
    $2225 / month + 30k down-payment + long-term commitment

    If you start your 40-year mortgage now to accommodate your 2 & 4 year old kids (for example), they will be 42 & 44 when you finish your mortgage. When they’re 12 & 14 (in 2018), you will still owe 277k on the home, which will make it tough to move.

    I’m not saying that ownership is bad, but it’s very over-rated. If cost to rent ~= cost to own, then renting is likely less expensive, especially in the case of a house.

  21. Traciatim on March 19, 2008 at 10:50 am

    Gates VP, here is the trouble with your hypothesis. Assuming you were looking at that exact home you look at your equation of what a house costs, I’m taking out Lack of Mobility and Your Time, since they aren’t really financial costs, but simply opportunity costs.

    So lets look at the 300K home, it costs:
    Mortgage + Maintenance + Utilities + Property Taxes + HOA/Condo Fees (if applicable) + Additional Property Insurance

    Now let someone else buy that 300K home, and you rent it instead:
    Mortgage + Maintenance + Utilities + Property Taxes + HOA/Condo Fees (if applicable) + Additional Property Insurance + Landlord Profit + Tenant Insurance

    Now sure, I agree with you that in places that have bubble home prices and rents haven’t caught up yet, it’s probably better just to rent. In most normal places in the country that aren’t in a frenzy if you are staying put for 5+ years you’re probably better off financially buying.

    If you look at my other posts over at Canadian Mortgage News you’ll see how I’m making your point for you for areas like Calgary where home prices have spiked way past the “3 times median income rule of thumb” in the area, where historically the median home prices have pretty much followed incomes.

    Take my city for example. I’m way out on the east coast (like on the ocean east coast, not Ontario) and while no one really wants to live here, it keeps home prices pretty rational. The median family income in my area is something like 60K and the average home sale price from the CREA website is at aroun 160K. That’s pretty darn reasonable.

    Another thing you forgot to mention is that in your example of when the kids are 14, your 300K home has appreciated at an average rate of 2-3% per year, plus you retain complete cotrol of upgrades which make it worth more. Assuming you paid nothing extra on your mortgage and you owed 277K on your home and it’s now worth somewhere between 365K – 400K. Suptracting your agents 6% (or 24K) you walk with 400K – 24K – 277K – 15K (for staging and prep) = 84000 dollars. That’s with 0 down on a 40 year mortgage over 10 years with 3% appreciation. I didn’t calculate the CMHC fees and all that jazz, but you get the point.

    I think the argument for and against buying realistically will never be won. Each province, city, neighbourhood, and even each individual deal has so many variables that you can never come up with a clear winner unless you are looking at two very specific properties and comparing the rent vs own. Even then you’ll never know the real cost of each until you’ve lived there a while. What happens if that great apartment you’re renting on the cheap is around the corner from an awesome health food restaraunt? This could happen anywhere and use a ton of your cash without even realizing. What about when you’re renting your apartment and people move in above you and across from you that you can’t stand. That’s what happened to me, and why I’m now enjoying a back yard, large deck, my own paint on the walls, and detatched from anyone who could suddenly move in around us. It’s a personal call, not a financial one in my case. Though finances play a part, it just makes sense for my family and were not the primary concern.

  22. Gates VP on March 19, 2008 at 11:22 am

    Tim;

    I agree with you completely.

    The buy vs. rent decision is so ridiculously complicated that it is clearly in the realm of being a “lifestyle decision”. I just presented an argument to the contrary to help bring it back to that realm.

    I actually don’t care what people do with their money so much as why they do it. When people say “renting = throwing money away”, it means that they’re basing their decision on bad information and that makes Gates a very sad panda :(

  23. Super Dan on May 5, 2008 at 3:54 am

    40 year am is great for getting into investing when you don’t have much income to start.

    on places between 150 to 200k you spend about $200 dollars less each month

    if you rent out the house and live there you will stay in the positive. With what ever you want at the end of the year you can pay the maximum prepayment.

    If you pay the maximum prepayment every year the amount of extra interest you pay is only a few thousand dollars.

    So in my opinion 40 year am is great for starting real estate investments because it gives you a safety net when your property is not as lucrative as you thought it would be.

    You can always increase your payment amount if your income is higher in a couple of years. A house can be payed off in less then 7 years doing this with a bit of luck and skill.

  24. Cannon_fodder on May 5, 2008 at 2:36 pm

    Super Dan,

    And if you factor in inflation over a 40 year amortized mortgage the actual cost in today’s dollars of a 40 year vs. a 25 year are not nearly as large as people would expect. The total cash outlay may be something around 30% higher, but with inflation factored in it is only around 15% more.

    Finally, it is a reasonable projection that making payments commensurate with a 25 year amortization but instead taking out a 40 year mortgage and splitting that into a 40 year amortization and the remainder going to a non-registered investment can yield a better net worth than sticking with just following a 25 year mortgage paydown plan.

  25. JR on May 5, 2008 at 7:05 pm

    A 100% 40-year AM mortgage versus a 80% HELOC … well

    Its not really a tough decision, since it is my opinion that 100% leverage for safe secure investments (such a REI or dividend paying securities that pay double your interest payments on the loan) is the best deal in town.

    If you never ever want to pay off your residential mortgage or an REI mortgage (since you always want cash-flow) then its better to always leverage max.

    Its all a mind set, and can you sleep at night

  26. George on May 5, 2008 at 9:11 pm

    JR: I think it’s a misnomer to call investments in real estate and dividend stocks to be “safe secure investments”. Both are securities that can change in value greatly for any number of reasons – Tenants can destroy an investment property, a business could go into a downward spiral (Enron, Bear Stearns, Nortel, etc).

    Risks are involved in all investments, and characterizing real estate and dividend-paying stocks as “safe” isn’t a fair or accurate description.

  27. JR on May 5, 2008 at 10:16 pm

    yes George you are correct, but like the old saying “as safe as houses”, my reference was to leverage.

    Before I say anymore, I want everyone to know that I am a Canuck living in Southern Ontario.

    One of my personal examples posted somewhere else, is an REI that I purchased for $125k 3-years ago that has a 100% mortgage and cash flows a nice $1000/mth. Its a walk away situation, “as safe as houses” should the housing market crash, what do I care.

    Same goes for dividend paying stocks, that are optionable long & deep in the money … yet to lose a single red cent … a strategy that works for me .. and only me, thank you very much.

    Everything in life is a risk, even putting a million dollars in a safety deposit box or under the mattress, there are no guarantees that the million is ever safe.

    I am 61 years old, I do not have time on my side, I have had my trips and pick-me-up’s, but what do I know!

    You do whats best for you the individual. My strategy is mine and only mine, it works for me, it belongs to me and not considered advice for anyone else to try.

    Now George, back to high leverage, do you have any suggested minimal risks investments. that hedge against what-if uncertainties?

  28. George on May 5, 2008 at 10:47 pm

    JR: Your examples aren’t truly indicative, since you’re referring to a real estate investment that you purchased before the market jumped. Anybody buying now is buying into a market at the peak. Sure, you don’t care that your $125k REI might tank in value, since you know that it’s not likely to drop below the $125k you paid. That can’t be said for the same person who bought the same house six months ago for $400k.

    Yes, everything in life is a risk, but generalizing like that isn’t helpful. The goal is to maximize the reward and to minimize the risk. Leverage increases the risks AND the rewards of any investment – the bonus you get from leveraged investing when the investment grows is just as much of a handicap if the investment drops in value.

    You say that your strategy is “mine and only mine”, yet it’s clear that you’re advocating your strategy as being a “safe” way to invest. I’ve pointed out that it isn’t necessarily as safe as you think.

    Minimal risk investments are things like insured bank accounts, GICs, and so on. They don’t have any chance to grow greatly, but they’ll typically keep up with inflation. They don’t have much of a chance of dropping in value, also. These aren’t the best choice for everybody, but they should form a core part of any portfolio.

  29. JR on May 5, 2008 at 11:26 pm

    George you referred to banks and some of their products.

    you said

    “Minimal risk investments are things like insured bank accounts, GICs, and so on. They don’t have any chance to grow greatly, but they’ll typically keep up with inflation. They don’t have much of a chance of dropping in value, also.”

    I refer to banks in the same way as a brothel, or those so called strong financial institutions in the US that have gone bust in the past, or the like Northern Rock in the UK, or like the Fannie Mae’s and the Sallie Maes… no guarantees.

    Dont ever say your money in the bank is safe. Sorry, if you want to be a purist then the closest it gets is under the mattress or in a safety deposit box.

    Hedge against the downside, maximum leverage … that is my investment strategy… I read that somewhere from a 1929 market crash that someone made zillions

    RBC nice Canadian bank, fluctuating stock, pays a 3% dividend, no guarantee on capital

    GIC’s 4-5% (non RRSP’s), taxable until the TFSA comes around.

    Then again, no guarantee or hedge against inflation, or if the bank or Canadian economy waffles.

    Its really amazing how a loonie could do what its done in the last twelve months, or that the US buck no longer commands the worlds attention, everyone eyeing the Euro … whatever next, we will be trading carbon credits … not a bad idea!

    George, I dont know whether the Canadian government will go bankrupt, whether the CPP or OAS will be there in the not to distant future, or whether the loonie will be devalued to a second or third class currency within the next 10-years.

    Canada is dependant on the USA for survival, and should the US be hurting, it is likely they will pull everything back home (I would)

    The auto industry is hurting in Canada, that in turn spins off to other industry sectors, housing, sub-factories, the butcher, the baker the candle stick maker.

    On the East Coast the fisheries industry ain’t what it was, as is the logging & timber industry in BC.

    its a selfish individual world that we live in George, its every man & woman for themselves … banks, industry, the ecomomy, politicians

    Sorry to go on, but everyone and everything is leveraged. Its belongs to no-one

  30. George on May 5, 2008 at 11:40 pm

    JR: It’s difficult to respond to your comments if you can’t confine yourself to a single topic.

    I will, however, disagree with you regarding the safety of “money in the bank”. Bank deposits in Canada are 100% safe if they are insured by the CDIC. If the bank goes under (highly unlikely, but possible), then your deposits would be returned, up to the CDIC maximums. An insured bank deposit carries far less risk than a highly-leveraged investment in real estate.

  31. JR on May 6, 2008 at 12:20 am

    George, I do waffle, so please forgive me.

    On CDIC, not everything is insured and even the CDIC caution about stability

    So that said, I guess your money (the majority) is in daily interest, Bonds, Mutfunds, GIC (longer than 5-years) and RRSP’s

    As safe as houses.

    A person saves from net income (after paying taxes) to purcahse a home. They leverage that home by paying a financial institution over 25-years 2.5 times that mortgage loan all from net income

    George, I have nothing further to say on safe and secure

  32. George on May 6, 2008 at 12:26 am

    JR: I agree that leverage can and does make sense (mortgages, as you point out, are leverage). Houses are only a “safe” investment if they appreciate in value – investing $400k on a house that might only be worth $300k two years from now is not a “safe” investment, especially if you might have to pay the whole $400k back (plus another $600k in interest) to the bank on your 40-year, 100% financing mortgage.

    Real estate investments can be great “passive” investments, but they can also be huge money pits, especially if vacancy rates skyrocket and you have difficulty finding good tenants. Your “$1000/month” cash flow is by no means guaranteed, and you need to have the ability to cover the mortgage and other operating expenses without the benefit of a tenant paying rent, should that situation arise.

  33. Vancouver realtor on May 6, 2008 at 7:43 am

    Mike you’ve made a nice summary of main advantages and disadvantages of a long-term mortgage. I especially like your conclusion “if you can’t afford a 25 year mortgage on the home that you want, then the home is too expensive”.This is absolutely right. This should be one of the basic clues when somebody is deciding to buy a real estate. I am working as a Toronto realtor and I can just confirm that many homebuyers tend to make this mistake and buy a house which is beyond their actual budget line.

  34. […] As Albert Einstein once noted, compound interest is the greatest mathematical discovery of all time but you sure don’t want to be on the losing end of compound interest for too long. In such a case, the longer you are in debt and not chipping away at the principal, the longer you will continue to be in debt (for a good example of how compound interest works against you, see Million Dollar Journey’s example of interest paid during the life of a 25 year mortgage compared to a 40 year mortgage). […]

  35. Dinglebottom on June 7, 2010 at 1:32 am

    It’s interesting to read the comments on this article two years later.

    I wonder what folks who commented would be saying now.

  36. George on June 7, 2010 at 9:16 pm

    @dinglebottom: It is indeed great to look back! 2.5 years ago I thought I’d have a mortgage-free house in 11 years. Now that goal is only 2 years away! Extra payments and some diligence have worked wonders!

    Plenty of folk have the opposite problem though – 40-year mortgages that are on year 2, with negative equity (the mortgage balance exceeds the house value). I fully expect housing prices to continue to drop over the next few years.

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