The yesterday, today and tomorrow flowers is much like the Condo Market in New Orleans. We know what has happened in the past. We know what is happening now even though we may all have a different take on it. None of us know what the future may hold. We do know a couple of things about buying a condo in today’s market. Here are a couple of things we tend to forget when financing a condo in today’s condo market.
Low Interest Rates of 4.5% mean….Lower notes monthly. You borrow 200k and your principal and Interest are $1013.37 per month. One of the things many forget is that you are paying your principal down quicker and building equity faster. In month one you will pay your principal down by $263.37, in the first year it will decrease by$ 3226.44. At the end of five years you would have increased your equity by $17, 684 leaving a loan balance of $182,313. Your total note in not just interest but principle as well.
Tax benefits of owning puts money in your pocket…. In year one you will pay $8934 in interest and that is deductible on your state and federal Income tax. If you are paying 25% income tax rate as an example this saving is 25% of $8934 or $2233.50. On a monthly basis the savings are 186.12 per month in year one. One thing we are certain about is that taxes are not going down from here.
Sweat Equity is also something that can work in your favor…. You may buy a condo that needs some updating or areas where you can improve on the value of the condo. Many of the things you can do yourself to improve the price of the condo. This sweat equity is sweet. It is all yours to keep if you live in the condo for more than two years. No capital gains taxes if this was your home.
Adding these numbers up in the first year will give you over $400 in tax saving and in equity. Its almost $450 in the first month and actually increases after this point as the loan balance gets smaller as each month passes. At the 36 month the mortgage payment you are paying the loan down at $300 per month. That is the good news about the lower rates………
The largest reason to own is that it is your place to do with what you wish. You can enjoy it and treat it like its your own place. You own it and when yous sell you have a good chance of leaving with something. You rent and you certainly will walk away with nothing. Paying rent for 60 months at $1300 per month is $78,000 that you will not see again. That is certain……….