Shawn from the book just bought a house. To get into his house, Shawn went to school, got an education, got a good job, saved money, and bought a house. Congratulations, Shawn! Anybody who can qualify for and buy a house is an excellent manager of money.
However, after buying his house, Shawn suddenly realized that he didn’t have as much available cash as he used to. Homes are expensive! And he found out that after achieving his goal of buying a home, he wasn’t sure what to do with his money next. Shawn meets Rick, and Rick gives Shawn some invaluable TIPs on personal finance and money management. This is Shawn’s mortgage:
As you can see:
- This is a 30-year mortgage.
- Shawn borrowed $250,000 for 30 years at an annual interest rate of 6.5%.1
- Shawn’s monthly payment is $1,580.2
- Each monthly payment is comprised of Principal and Interest.
- As the borrower pays off Principal debt, the Principal portion of the payment gets bigger, and the Interest portion of the payment gets smaller.
- The borrower will pay more Interest than Principal for most of this loan.
- If the borrower were to make all payments on time, the borrower will pay more interest on this loan than originally borrowed.
- These numbers will be used throughout the book and are excellent for illustrative purposes. Each mortgage is unique, and the math of your mortgage will be unique to your mortgage. These numbers will be used to understand the general concept. After you understand the concept, you will be ready to use tools to apply it to yourself. ↩︎
- This includes Principal + Interest which are exclusive to the debt. Other non-debt related fees that are usually added to the mortgage include Taxes and Insurance. You will pay these whether or not you have a mortgage, so for financial education purposes, only Principal and Interest will be used. ↩︎