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Originally Posted by Pops
Right, but that's partly assuming that I'll be carrying this mortgage to full term which I'm not. In 5 years, my house has appreciated $110k (just got the appraisal in this morning) and the neighborhood is only 60% developed. My plan here is to build a smaller house and sell this one after the kids are grown and moved out. By then, the neighborhood should be very close to completion and the appreciation should be enough to be able to build smaller on some small acerage further out with financing $50k or so at the most. With the current numbers, I could do it now and reduce the mortgage amount at least 50% but I want the kids to finish school first. There's no question that you're right about spending more for the auto intrest in the long run, but I just wanted to consolidate our current monthly spendings since it's obvious to me now that wifey wants to continue to stay at home. With appreciation combined with equity, my plan is to have about $450k-$500k to build a new place with when the kids are grown. The nice thing about living here is that alot of new homes run about $110-$120/sqft so a 2600sqft home costs less than $300k.
Y'all's replies definitely have me rethinking things but I'm still thinking this is what I'm going to do.
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So you are basically planning to pay off the cars from the profits from selling the house while keeping a lower interest payment until you sell the house. This makes perfect sense as long as you really can sell it for what you think you can in the time frame you are thinking and you don't get comfortable in your house and decide to stay. If you stay too long or if things don't work out this would be a bad deal.
Keep this in mind (since I don't know how old your kids are).
Using the math above, the present value of your interest payments on the 5 year, 10% loan is roughly $5150. Interestingly enough, by the end of the 6th year of rolling the car into your mortgage, you will have made interest payments on that part of the loan of roughly $5870 in today's dollars. What you should take home from that is that if you are staying longer than 5 years it really will not pay for you to do it. The reason there isn't much difference between the two is that these types loans are pre-loaded with interest payments, it's only during the later part of the loans where you are paying off the principal.
Here's the running total for the interest payments in the house loan.
Year /Present Value of all interest payments
1 1107.15
2 2161.49
3 3163.98
4 4115.53
5 5017.01
6 5869.26
7 6673.05
8 7429.14
9 8138.22
10 8800.97
11 9418.01
12 9989.91
13 10517.25
14 11002.50
15 11440.25
16 11836.77
17 12190.55
18 12501.92
19 12771.25
20 12998.81
21 13184.87
22 13329.66
23 13433.36
24 13496.13
25 13518.09
If you are there more than 5 years under this scenario, it just doesn't make sense. Furthermore, if you have lower interest payments, higher principals, or shorter terms 5 years is an overstatement. The house appreciation should be irrelevant to your plan to some extent. The only reason the appreciation matters is that you essentially plan on paying off the car loans from the profits. Your house will appreciate the same amount regardless of if you roll in the loans or not and you will be paying off the entire principal remaining on the cars when you sell the house anyway (since you will pocket that much less). You really need to think of the benefit of doing this as getting a slightly lower interest rate for 5 years because as I said, anything more and you are losing money.