Question on home equity

Monsanto baearea1
Jan 7 11 Comments

Let’s say hypothetically, you take a $1M loan for a house at 4%, 30 year term. Interest for full term is $1.2M. ... and after 10 years say you have paid $360000 in interest and roughly $200000 in principal. And now assume your home’s market value is $2M. You want to sell the home, what is the net cash you can expect in hand at the end of this sale?

After 10 years:
Principal left on loan: $800000
Interest left on loan: $840000

Is it: $2M - $800000 - $840000?

Or can you avoid the remaining interest ($840k) somehow (atleast some of it, if not all)?


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TOP 11 Comments
  • New DuQvV7x
    You owe principal, not interest.

    In your example, the money you would walk away with is $2m - $840k - closing fees
    Jan 7 0
  • Google ISkJ25
    You only pay interest as long as you have the loan. You will get 2m-800k=1.2m
    Jan 7 3
    • Monsanto baearea1
      Awesome, that’s what I thought, thanks! I am assuming closing fees to be negligible compared to principal in this case.
      Jan 7
    • Gartner yagami123
      Won’t you have to pay like 30% tax on those 1.2 mil ?
      Jan 8
    • Google 1234-/:;(
      Depends if you do a 1035 exchange and defer the taxes on gain
      Jan 9
  • NEXON M JK16220
    No you’d just pay off the outstanding principal at that point. In your example, you’d have ~$1.2mm net of closing fees etc. The magic of leverage! Obviously it can go the other way on you if home value decreases.
    Jan 7 0
  • Reddit steveh
    Interest doesn’t matter in this calculation at all. The only thing that matters is equity and selling price.
    Jan 7 2
    • Monsanto baearea1
      Would appreciate if you would illustrate with some approximate numbers.
      Jan 7
    • You don't pay the remaining interest, unless you've been locked into some really unscrupulous loan.
      Jan 7
  • New me2you.
    Sounds like you are interested in potential "profit" by looking at your primary residency as an investment. If so then do a proper due diligence.....

    Dont forget to subtract $100,000 maintenance, $150,000 asset tax, $100,000 (5%) closing commission...

    The real question is can you hold on to your job for next 10 years in order to pay $70,000 without interruption.
    Jan 7 0
  • Facebook public2
    You only pay interest on the loan, if you sold you would pay off the loan and not continue to pay interest. Related you can deduct some to all of the loan interest from your taxes.
    Jan 7 0

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