How Much of a House Do You Own After 5, 10, or 20 Years?
I’m playing with the Excel mortgage calculator I wrote about this morning.
I’ve always heard that with a 30 year mortgage, you don’t own that much of your home after 15 years of steady payments… You’d think after shelling out half of all the payments, you’d own at least close to half of the home. But the reality is, unless the house is appreciating, it isn’t even close. Take a look at these numbers I ran on the model this morning.
30 Year Mortgage (Any Amount)
Here’s how much you own….
- after 5 Years: 5.86%
- after 10 Years: 14.18%
- after 15 Years: 25.98%
- after 20 Years: 42.70%
- after 25 Years: 66.40%
- at 30 years: 100.00%
And when exactly do you own 50% of your house on a 3o year mortgage? That occurs at 21 years and 9 months… a little more than two-thirds of the way through the payments. So what’s the difference if you go with a 15 year mortgage amortization schedule instead?
15 Year Mortgage
With a 15 year mortgage, the picture is a little brighter:
- after 5 Years: 22.58%
- after 10 Years: 54.60%
- at 15 Years: 100.00%
The Payment Difference
So how much more do you have to pay to get the 15 year results? The answer is 41% more of the principal and interest payment. For instance, if you have a 30 year mortgage that costs $1200 / month, and $200 of that goes to property taxes and insurance, the principal and interest portion is $1000. Adding 41% to that is $1410 + $200 taxes and insurance = $1610 / month, or about 33% more than the initial total payment.
That’s right, for just about 33% of the total payment in most cases, you can cut your loan payback period in half. (You can see other amortization schedules and payment combos at that link).
What About Buying a Smaller Home?
Here’s something else to consider if you’re in the market for a house:
If you buy a house that’s about 20-25% less than what you could afford on a 30 year payment, you can make the same payment and own the home in just 15 years.
That’s right. By adjusting your standard of living by just 20%, you can own your home outright in 15 years less than the 30 year norm.
(photo credit: itjournalist)
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5 Responses to How Much of a House Do You Own After 5, 10, or 20 Years?
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November 18th, 2009 2:29 am
Yay! I think I may own about 2/3 of my kitchen now!
(were you being sarcastic when you wrote “adjusting your standard of living by JUST 20%”?) That may work for someone working their way up from one home to another, but most first time home buyers are probably already buying the least expensive house they find acceptable.
November 18th, 2009 9:36 am
WhyS-Actually wasn’t being sarcastic. I think that while some folks buy the minimally acceptable house, many more first learn what they can afford from their realtor or lender who tells them “you can afford XXX based on a 30 year mortgage with Y down” … very rarely do first time buyers think about purchasing less than this ceiling amount.
I think its a psychological thing…Most folks don’t want to pay $1000 / month to live in a house that’s 20% smaller, or 20% less finished, or 20% in a less desirable neighborhood, if they can pay that same $1000 and get that extra 20%. The fact that they’ve committed to an additional 15 years of payments, and a much slower equity pay down (perhaps the more insidious part of a 30 year mortgage) doesn’t really enter into the picture.
Once you get in your mind that you can afford an amount, its very, very hard not to spend that amount.
Anyhow, just the way I see it… but there’s certainly nothing wrong with the 30 year fixed mortgage. We have one
November 19th, 2009 1:23 am
I’m not sure how accurate it is, but on one of the HGTV home buying shows, they said that if you make just ONE EXTRA mortgage payment a year, you can shave as much as 11 years off the life of a 30-year mortgage.
It’s good that you[ve also pointed out taxes and homeowner’s insurance and the like. I think a lot of first-timers in particular forget to figure those expenses into their mortgages, both of which can significantly impact your monthly payments.
November 21st, 2009 2:34 am
Fred, I guess I’m a different breed then. I don’t even remember what the bank told us we could borrow. I only remember that we were adamant that our house payment not be much more than we were paying in rent because we didn’t want our lifestyle to change much just because we’d bought a house. Ironically, that put us in a fixer upper and there went the next 7 years of our carefree lifestyle.
November 21st, 2009 11:13 pm
Nicole – I can believe the HGTV … paying 1 extra payment does make a big difference, because that entire payment goes to principal instead of principal, interest, and escrow. Especially if a big payment is made early on, you avoid paying interest on that principal for the entire rest of the loan. It really is incredible what the time value of money comes out to…