I hear people say things all the time like, “If you get a 30-year mortgage, you pay more in interest than the house cost!”

NOOOOOOOOOOOOOOOOOO.

Wrong.

If you get a 30-year mortgage, in a stable monetary environment, the value of a particular dollar deflates over time, so that each year you pay progressively less relative to your starting year.

I’m explaining this poorly. The 1st year of your mortgage, your 2018 dollar is worth about the same as your 2017 dollar. Just a little less. But your 2027 dollar is worth a lot less than your 2017 dollar. Yet, you still pay the same amount to the mortgage company. They don’t raise the payment (in a standard fixed-interest loan). And generally, salaries at least keep pace with inflation, as do house prices.

In other words, you are giving less valuable dollars of the same absolute amount (say, $800 a month) to the mortgage company while you make more and your house is worth more relative to those fixed payments.

If you actually do the math on a 30-year mortgage vs. inflation, and you include housing price rises and a few other minor factors, the cost of a mortgage (the interest) should roughly equal these numbers — in other words, you “really” pay roughly zero interest over time….

By the way, this is why it’s not always to your advantage to pre-pay a mortgage especially.

Don’t believe it when you hear someone say, “You paid more in interest than you paid for the house.”

It’s only true if you don’t understand a damn thing about anything.