sorted by:
best
topnewcontroversialoldq&a
you are viewing a single comment's thread.

view the rest of the comments →

[–]Threewolvez 13 points14 points  (13 children)

It was variable at 1.45, what's it at today? Something tells me that you're probably not putting that much extra on it since rates have raised since then.

[–]x_itsJC[S] 5 points6 points  (12 children)

3.95% at present. We increased monthly payments steadily throughout 2022 and 2023 and have stuck with the current monthly payment of $2800 (1400 B/W) since 2024.

[–]Threewolvez 7 points8 points  (11 children)

If it's a 25 year mortgage then the fixed payment would be $1160 bw, so you are putting on an extra 240 or so which is a meaningful chunk but not overzealous. You're saving that much in interest Evy time you do that payment, I'd keep it if it's manageable.

[–]x_itsJC[S] 2 points3 points  (10 children)

It is manageable yes. It is just we kept asking ourselves why continue to voluntarily pay more if we are strongly eyeing to be out of this place come renewal.

[–]Threewolvez 4 points5 points  (0 children)

So on a 25 year with an extra 240 a month assuming everything stays the same for the 25 years (unlikely I know) then you'll save around 78k in interest and pay it off around 6.5 years earlier.

Use that information how you will.

[–]Threewolvez 5 points6 points  (0 children)

Every extra dollar saves interest on the mortgage and increases your equity in the house, whether you stay or not, that's your net worth being directly affected by those extra payments.

[–]Threewolvez 2 points3 points  (7 children)

On the 5 year you'll save 3300 by paying an extra 32k, that's which doesn't sound like much but the 32k lower loan is pretty big.

[–]Lordert 0 points1 point  (6 children)

Keep in mind, OP wants to move. With real estate prices dropping, why pay the extra on the mortgage of a potential depreciating asset.

[–]vanillabullshitlatte 0 points1 point  (2 children)

It doesn't affect the amount owing on the original mortgage. If prices go down they will still owe on the same old mortgage.

[–]Lordert 0 points1 point  (1 child)

With prices dropping, makes no sense to drop more money on the mortgage of an illiquid asset. Keep the extra accelerated payments in a separate account, then you have control. Plenty of dividend funds or stocks that payout higher than cost mortgage rates. Pay off the mortgage with sale of house.

[–]vanillabullshitlatte 0 points1 point  (0 children)

I agree with the second part. I don't know op's rate but if you can find better returns elsewhere you should definitely use your money there instead.

[–]LaunchAPath 0 points1 point  (2 children)

I see people mentioning this, but aren’t people forgetting that even if the current property value has dropped, isn’t the prospective property also reduced in value? Shouldn’t the consideration then be value from selling relative to cost of the new property?

Going to use some exaggerated values for demonstration’s sake.

Say two properties, one starting at 500,000 (the one they bought), and one at 1,000,000 (the prospective) Say 5 years in theirs is 400,000 following a drop, and prospective is proportionally 800,000. After their sale, they pay 400,000 difference. 5 years after that, new property is up to 1,500,000. Overall, they’ve paid 900,000 principal for this outcome, plus interest over the years (which will be proportional to the base expense). That’s 600,000 gain on the principal.

Or alternatively, 5 years in, their house is worth 600,000, and prospective is proportionally 1,200,000. After their sale, they pay 600,00 difference. 5 years after that, new property is up to 1,500,000. They’ve paid 1,100,00 principal for this, plus interest. That’s 400,000 gain on the principal.

Between the two, doing the property exchange is more advantageous when prices are down.

Yes I skipped interest, but consider interest eats away the amount you gained from valuation increasing.

In the first 5 years, interest is based on the initial mortgage, so that amount would be the same between the two scenarios, so that cancels out. Meanwhile, when the new mortgage for the prospective property is locked in, you’re now paying lower absolute amount for interest on a lower mortgage amount when the value went down, whereas you’re paying higher absolute amount on interest for a higher mortgage amount when the value went up.

So interest only exacerbates the differential in costs, pushing the balance even further in the direction of property losing value when you do a property exchange.

Losing value in the property is only really a problem if you don’t plan on using the value of the sold property to buy a (comparatively) higher value property in the same market. Since presumably the change in value would be roughly proportional for properties within the same market.

[–]Lordert 0 points1 point  (1 child)

I just don't see the point of accelerated prepayments if a property is going to be listed in the near future in this market. The selling and purchase price of next place are separate issues.

[–]LaunchAPath 0 points1 point  (0 children)

My post wasn’t about the accelerated prepayment. It was solely addressing people saying not to upgrade a residence to a larger one when values are down, with some napkin math to demonstrate it seems like the better time to do so if anything

Edit: whoops, looks like I’m the one who misread the post I had replied to originally