How to calculate TIP (total interest percentage) when financing a home

A friend called me yesterday (like actually called, not texted… yeah, I know, I was freaked out too). He asked me if I knew what TIP was. He was looking at his mortgage details and shocked at the total amount of interest he was going to pay over the life of the loan! I had never heard of the TIP acronym before, so I thought I would share!‎

I think this TIP number can be shocking because mortgage rates are at all time historic lows. (Did you know the average mortgage rate in 1981 was over 16%?!) But today, it almost feels like “free money”. But just as investing can benefit you with the awesome power of compound growth. A long term loan can burden you with the weight of compound interest!‎

How do you reduce the TIP? Basically, borrow less money or pay it off faster. Spending less on your home will help you accomplish both.‎

There is a reasonable school of thought that you should pay off your mortgage as slowly as possible as the money can be invested and get a greater rate of return in the market. I don’t think that’s a bad idea, as long as all your other debt is paid off and you have at least 20% equity in your home. But either way, spending less on your primary home will open up even more of your income to investing and building wealth!‎

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.‎‎
p.s. I’m curious if people will yell at me in the comments for saying that renting is always better on this post. Because, you know, I literally never say that.‎

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