Our bank tried to convince us we wanted a $700,000 house.

They said we could "afford it."

They said everyone "deserves a nice house."

We bought a $270,000 house instead.

Here's why.

// THREAD //

1. Background

We WANTED to be mortgage-free quickly and we didn't want a bank telling us where to put our money each month.

We didn't want a mortgage we'd HAVE to hold for 15+ years.

We also didn't need a big house.

We NEEDED a house we could pay off in <5 years.

2. Scenarios

We bought for $270,000.

If we had bought that house in a city 45 minutes away, we would have spent $400,000.

We were bank-approved for $700,000.

So let's run these to see what was ACTUALLY doable:

- $270,000
- $400,000
- $700,000

2. Assumptions.

- Based on our 2018 income.
- $205,000 downpayment.
- 3.49% interest rate.
- 15-year amort'n.
- Monthly payments.
- Annual 15% principal pre-payment used annually.
- $13,000 in savings account at start.
- The object is to pay off the house in 5 years.

Let's go.

3. The $270,000 House.

$205,000 = 76% down.

$65,000 mortgage.

Payment: $464/month.

15% principal pre-payment applied at 2 weeks.

Pay-out at 282 days.

Total interest/penalties paid: $2,269.

4. The $400,000 House.

$205,000 = 51% down.

$195,000 mortgage.

Payment: $1,391/month.

15% prinicipal pre-payment applied at 5 months, then every 12 months.

Pay-out at 3.07 years.

Total interest/penalties paid: ~$16,500.

5. The $700,000 House.

$205,000 = 29% down.

$495,000 mortgage.

Payment: $3,530/month.

15% annual principal pre-payment never reached ($74,250). $25,480 saved and paid end of each year.

Pay-out at 8.8 years.

Total interest/penalties paid: ~$80,700.

6. Recap.

$270,000:

- Paid off in ~9 months
- $272,269 total costs
- Freed up cash flow early

$400,000:

- Paid off in ~3 years
- $416,500 total costs
- Wouldn't save for retirement for ~3 years.

$700,000:

- Paid off in ~9 years
- $780,700 total costs
- Super house-poor.

7. Bigger Isn't Better.

The $700k house wasn't doable.

We couldn't pay it off in 5 yrs.

We also would have tied up too much cashflow.

We'd be broke & house-poor.

And why buy $400k in the city when same option 45mins away is cheaper?

Then, there's the space itself.

(con't)

Pricier house = bigger house.

Bigger house = more stuff.

More stuff = more spending.

More taxes, utilities, maintenance, time cleaning, etc. etc.

Compounding CAN work against you.

Don't be a slave to stuff.

Or your house.

Or a bank.

Bigger houses aren't better for anyone.