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    For All You Finance Folks

    Allrighty.... this is for the likes of that nikamma Nyahmadhi and that namakool Pir Sahib. Here's the scenario:

    You currently own a house with a mortgage rate of 7.75%. You're planning on moving into another house with mortage rate of 8.125%. You have about 70% equity in the current house.

    Now, you want to sell your current house to use the equity as down payment on your new house but you just can;t get it to sell. You have some dough in the bank that you were gonna add to the equity you would get from the sale of your house and use it all for down payment. The dough in the bank is enough to payoff the current mortage and a bag of chips.

    The issue:

    1)Should you payoff the current mortgage and use the little money left as down payment for the new house. This way you'll avoid two mortageg payments.

    Or

    2)should you use the dough as down payment on your new house to cut down on your monthly mortagage as much as you can. This way you can make two payments.

    #2
    Man, Ghalib, you are really the king of pain. Bhai, payoff the current mortgage. Whether its 7% interest or 6%, you are just loosing money as your saving must be earning only 4 to 5% and not more.
    The prince who is otherwise known as TLK

    Comment


      #3
      The money was initially invested in funds earning higher than the current rate.

      Comment


        #4
        Ghalib Bhaia, all I will tell you is that life is short, and do whatever makes you happy, if it means a little financial hardship in the short run, it is not such a big price to pay.

        I am currently in the process of remodeling my kitchen. I have ordered tiles from Mexico and Portugal, and it is beginning to look just the way I imagined it will look. Doing this has punched a big hole in my pocket and at another place, but the enjoyment and excitement of shopping for the home made up for all the financial hardship and pain of eating out every night for almost 3 months.

        My advice to you will be, if you can afford it and it won’t cause extraordinary hardship for your family, go for the house that you like. Saving 1% on mortgage over 30 years comes out to pennies (in real terms). Real terms being when you factor in the value of the happiness (which is priceless) and for everything else there is master card.

        Good luck, and let us know what ever you decide. I am sure that you and Bhabi will make the right decision.

        Comment


          #5
          Ahmadhi:

          Did I say this was for me? Nahem... ahem..

          The problem is not whether to buy the house or not. The house will be bought not matter what. The issue is whether to payoff the current house or not based on the "givens" above. So, more input needed.

          Comment


            #6
            Ok Ghalib, so here is what I will do in that situation.

            I will keep the current house (at 7.75) and continue building equity in it. Will buy the new at 8.125 and make just enough down payment (20% at least) to avoid paying PMI. PMI stinks.

            I will make extra payments on the lower APR mortgage, for faster equity acceleration. Once this house is paid off, I will sell it to put all the money into higher APR payments to lower the Principal.

            Even though the equity acceleration method saves you a little in the short term, but after paying taxes, etc, it even outs.

            So, keep the house, buy the new house with a new mortgage. I would not touch my savings unless absolutely necessary. If the savings are for kids college, I will not touch it no matter what.

            Comment


              #7
              Hmmm.. interesting...

              I thought otherwise. I figured to payoff the eixsting mortgage so atleast one mortgage will be eliminated. And then use the rest of the money for down payment.

              If the current mortgage is paid off, then the difference between new mortgage premium increase vs. keeping the existing mortgage will be about 160 bucks/month. So a saving of 160 bucks if the existing mortgage is paid off and the premium, in turn, for the new mortgage in increased.

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