Most people believe that the most expensive purchase they will make is buying a home. They make offers below the asking price, trying to save a few thousand dollars. If a low offer is accepted, they are elated. Then, many of them secure a mortgage loan that ends up costing them tens of thousands of dollars more than they should be paying.
Example: A thirty-year loan will almost always cost more than the property. If you buy a home for $100,000 and get a 7% loan for thirty years for $100,000, the total interest on the loan would be $139,508, making the loan cost you more than the home is worth. The same loan at 6% would have a total interest of $115,838.
Suppose you paid 7%, but took the loan for fifteen years. The total interest would be $61,789.40, which is substantially less than the purchase price and less than half of what you would pay for the thirty-year loan. The fifteen-year loan at 6% would cost you $51,894.80 in interest.
You can easily see that negotiating the right loan may be more important than negotiating the purchase price of the home. It would be impossible to buy a home listed at $100,000 for $12,386.80. It is possible to save the $87,613.20 on your mortgage by getting a 6%, fifteen-year loan instead of a 7%, thirty-year loan. If you are going to borrow $200,000 or $300,000, the savings are even more dramatic.