Playing with Mortgage Numbers
As previously mentioned in my Current Status post there are three properties I am partial owner of with my parents. All three of them have loans at different stages of their life. Just to satisfy my curiosity I’ve decided to try and figure out when we would be able to pay off all the mortgages and own the properties free and clear.
- House #3 – I will pay the fixed payments of 870/month and prepay by 500/month. The loan will be fully paid within 8 years and the title will be free and clear in the year 2017. That’s the year I hit 35 yrs old.
- House #2 – This house only has a mortgage loan of 39,000 left on it. No more prepayment will be done on this loan; prepayment was done drastically in the past by both me and my parents. Based on information from the lending bank this loan will be paid off on May 2012. That is in three more years, or when I hit 31 years old.
- House #1 – This house has a mortgage loan of 147,000 left on it. No prepayment has been done on this loan. Based on the information from the lending bank, by May 2012 the loan owed will be 111,000. If no prepayment is done on this loan then it will be repaid on May 2019.
Now assuming we take the income from House #2 to help prepay the mortgage on House #1 (this is after House #2 is fully paid in May 2012):
2,100 (rental income) – 500 (property tax) – 100 (insurance) – 100 (repair/maint) = 1,400 income per month or 16,800 a year.
The depreciation we get to use as expense for this property is about 5,000/year. Thus the taxable portion of the income is 1,400 *12 – 5,000 = 16,800 – 5,000 = 11,800. The tax (assuming a 30% tax bracket) on the income is 3,540. Thus, leftover income after paying tax is 16,800 – 3,540 = 13,260 a year or 1,105 income per month.
Using Bankrate.com I plugged in all the facts of House #1 as of May 2012 and added in the prepayment of 1,105 a month. This resulted in a revised loan payoff date of March 2016. That’s the year I hit 34 years old.
Thus, based on the above information we can pay off all three properties by the time I am 35 years old.
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