Actually, her front end is 36%. And the 25% default figure was arbitrary, if she has a 20% default risk and it happens 3-5 years out, all of the "forced savings" she does should be discounted by a factor of 20%, ie, her expected value from the transaction = 80% of forced savings. A -20% return does not beat a T-Bill or a CD in this case, not even close.
She does benefit from reduced income taxes, OTOH, she's worse off from property taxes, upkeep and repairs relative to renting.
She does have the pride of ownership. As Reaper points out, unless her income drastically changes, it's unlikely she'll be undertaking any major renovations soon, not that those generate positive returns in most cases (they don't).
The one thing she has going for her is that she's apparently a federal government employee, which would reduce her layoff risk substantially.
Obviously she's ecstatic with the gift of $4,400 for the down payment (who wouldn't be). It's still an open question whether she'll be happy by the time the house is paid off (or foreclosed, or otherwise disposed of). |
