House or Home

The majority of us don't have $200,000 lying around to purchase a house. We need to apply for a mortgage. A mortgage is a long-term, secured loan from a bank or other financial institution for the purpose of buying a home. The loan typically takes thirty years to repay, and the house and/or property act as the collateral for the loan. If the consumer fails to make payments, the lending institution can take the collateral and sell it to get their money.

If you had a $200,000 mortgage:

Interest Rate You Pay Back
7% $479,022
11% $685,665

The 7% rate would be given to an individual who has a good credit rating. The 11% rate would be given to an individual with a poor credit rating. In this case, the difference of just 4% results in an additional $206,643 being paid out over the life of the loan. The impact on the monthly payment would also be significant. Continuing with our example:

Interest Rate Monthly Payment
7% $1,330
11% $1,904

In this scenario you would pay an additional $574 per month if you were hampered by poor credit. If you were to invest that $574 a month in the stock market, which has an historic rate of return of 11%, you could earn $1,609,220 in thirty years.