Posted on January 30, 2013 @ 05:30:00 AM by Paul Meagher
At the end of march next year, my wife and I will have paid off our house mortgage.
My wife was looking over some financial statements and it looks like the total amount we will have paid for the house will consist of the original mortgage cost plus approximately 44% of that amount in interest costs.
We wondered whether purchasing real estate is a good investment or not.
My wife pointed out that this can't be answered in the abstract because it very much depends on what your interest rates are as you pay down your mortgage. We had higher interest rates at the beginning of our mortgage 12 years ago (approx 6%) but the last few years they have been in the 2.5% to 3% range. It would have been especially nice
to have had the lower interest rates at the beginning of our mortage as we would have taken down the principal faster and paid less interest. Our interest rates have been fairly reasonable compared to borrowing in the 80's and 90's and compared to those with a poorer credit rating.
In general, the degree to which a real estate investment is good or bad very much depends on how that investment is financed, in particular, the timing and size of interest rates on borrowed money. Current low interest rates make real estate investing fairly attractive right now. We are happy that we purchased a second farmstead property in our home town 3 years ago as the interest rate regime has been favorable (2.5% to 3% range). If the farmstead wasn't such a money pit, I'd be even happier :-)
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