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    mrkingston's Avatar
    mrkingston Posts: 1, Reputation: 1
    New Member

    Jun 7, 2005, 08:49 PM
    Invest or pay off mortgage
    Owe 118,000 on mortgage at 5% interest rate on 10 year term.
    Want to buy a new house that is worth 280,000. Current house will sell for 200,000. Should I pay current mortgage off in the next 3 to 4 years and cut back on investments. Or should I sell now keep investing put new house term over 20 years and put anything I get from income tax onto new house. Spouse and I are 31 years old no other debt except car payment.

    Bottom line
    1. keep doing what I'm doing sell and get into longer term with dream home.


    2. pay off existing mortgage quick so I can have large down payment on next house. But also have to sacrifice investing so much for next few years until mortgage is paid off
    Kyler2776's Avatar
    Kyler2776 Posts: 6, Reputation: 1
    New Member

    Jun 9, 2005, 12:57 PM
    Tough call
    The real question I would have to ask is which option makes the most sense financially. There are 3 main things that impact your decision in my mind:
    1)how long have you lived in your current home
    2)how much money will you make from investments per year
    3)what is the housing market like in your area

    The first question deals with taxation on your home and any money that you will have made over the time you have owned the home. If you have lived in the home 2 out of the last 5 years and you purchase a home that is greater in value than your current home, you do not have to pay tax on the profit made from selling your current home.
    The second question deals with the ROI, or return on investment, from your investments that you make now and in the future. You will need this to compare to the money you are going to make on your new home.
    The third questions will tell you what your ROI is for your dream home and the future pricing of your dream home.
    If housing goes up by 10% per year, your current house will be worth $242,000 in two years and your dream house will be worth $338,800. That is a difference of $80,000 now versus $96,800 in two years ($16,800).
    Going with the 10% housing increase, let's take a look at buying the dream home today rather than two years. If we assume 7% taken for real estate deals and you sell at $200k, your will receive about $186k net. Take that against what you owe on the house ($113k) and you will have about $53k to put into your new home. If you buy your new home at $280k, and put 20% as a down payment, you will have a loan of $227,000.
    Looking two years down the road, you sell your house at $242k, less 7% fees, your net profit is $225,060. You now go to buy the $338,800 home now. You can put down $107,800 to match the $231k loan and still have $117,260 left to do whatever with. If you put it all down, the loan will be about $113,740.
    Now, the 10% is a random number I picked but you can see the impact of waiting versus buying now. Real estate for the most part is the best investment one can put their money into. It is more consistent and reliable than any other investment and it will also hedge against inflation.
    I hope this helps.

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