A house is the biggest purchase you will ever make.

But people royally screw it up.

They don't THINK for themselves.

They buy WAY MORE house than they NEED.

It's a very EXPENSIVE mistake.

Here's why:

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1. Ditch The Status Symbol

People are certain houses depict status;

Blinded by the lingering "American (& Canadian) Dream" ideal & encouraged by

- Family
- Friends
- Lenders
- Marketing

to buy as MUCH as they can under the guise of having "made it".

This is stupid.

(con't)

They fail:

- to realize that a large house + large mortgage = little equity.

- to account for ongoing carrying costs such as taxes, maintenance, utilities.

They are:

- Encouraging debt
- Tying up cash flow
- Paying more interest
- Incurring extra costs

But how much exactly?

2. Scenarios

For this exercise, let's use a similar example from a previous thread.

Houses valued at:

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

3.49% interest rate.

$205,000 down payment.

But now, a 25-Year mortgage.

Let's go.

3. The Debt

$270,000 house = $65k mortgage
$400,000 house = $195k mortgage
$700,000 house = $495k mortgage

Compare the $270k vs. $700k house:

The $700k house is 2.59x more expensive.

Its mortgage is 7.62x larger.

And will take FAR longer to pay off.

Pro-tip: Limit debt

4. Cash Flow

Consider financial flexibility.

Monthly Payment - 25-yr mortgage:

$65,000 mtg: $324
$195,000 mtg: $973
$495,000 mtg: $2,469

If this was us, at 25 years, we'd tie up >30% of our net pay on a $700,000 house.

Not good.

(con't)

VERY not good if you consider unpredictable events.

Job loss, for instance.

For us, the mortgage on the $270,000 and $400,000 houses would still get paid.

But the mortgage on the $700,000 house - we'd be in negative cashflow.

Consider the unexpected when you're househunting.

5. Other Interests

Total Interest - 25-yr Mortgage:

$65,000 mtg: $32,255
$195,000 mtg: $96,764
$495,000 mtg: $245,633

Remember me saying, 'Limit debt'?

Imagine pissing away $245,000 because you WANTED the status-symbol house.

Yikes.

6. Opportunity Cost

But it's worse. There's an opportunity cost.

You could have invested that money.

The 25-yr opportunity cost for:

Buying at $400,000 instead of $270,000?

$452,000.

Buying at $700,000 instead of $270,000?

$1,500,000.

(7%, comp monthly)

Double yikes.

7. Maintenance

A house is a real property asset.

It will wear down, meaning it requires regular maintenance.

- Repainting
- Replacing a roof
- Replacing flooring
- Updating the kitchen
- Renovating the basement

will be cheapest for the $270,000 house.

(con't)

Prime example:

This year, we had a steel roof installed on our ~900-1000 sq ft house.

$10,500 tax-in for 12-square.

A $700,000 house here is two-storey and 4x the floor area.

The same roof on THAT house:

Likely $35,000+.

Not cheap, and often NOT considered when buying.

8. Commissions

At some point, you may go to sell.

You have to pay commission on the sale.

At 5%:

$270,000 = $13,500 commission.
$400,000 = $20,000 commission.
$700,000 = $35,000 commission.

More expensive to:

- Buy
- Hold
- Maintain
- Finance
- Sell

Go smaller.

9. Intangibles

Then there's what you can't put a number to.

The stress-free feeling of not owing a dime to a lender or having them dictate where your money goes each month.

You can't put a value on that.

A bigger house will delay this.

Know 100% what you're getting into.

10. In Sum.

You're better in a smaller house.

Something befitting your NEEDS over your WANTS.

A smaller house means:

- Less debt
- Greater flexibility
- Less interest
- Cheaper maintenance
- Mortgage-free sooner
- The satisfaction of OWNING the biggest thing you'll ever buy.