Short Sale

[FromTexas]

No the math works every time, you run the numbers and go with the best economic choice every time and there is no argument which is best. Anything else is just opinion.

Really?

Let's take your example.

$200k/6% ($350k home)

Trading down to $150k mortgage/6%. ($280k home - $50k less equity on mtg with $20k reduced equity from selling home)

You are trying to convince the person to take less, so lets says you want it for $20k less.

The person is saving $250 a month on interest using your simplified interest from your original post; which is fair since their savings on interest will be slower than the higher payment. We will stick with your basic assumption that principal will be recovered in this trade down.

The person can reinvest their $40k... at 5% guaranteed. So, $2000 a year. It will take them about 30 months till they will start gaining after recovering the reduced price in your scenario; only by providing you a generous reduced principal per month payment. If you are talking saving $30-$40k over their current price, it will be quiet a bit longer.

So, they have to decide if in 30 months someone will offer them their asking price. Probably more like 3 years.

But... I fully agree someone should do the math and find out what is better for them economically (sometimes it will go as you suggest and sometimes it wont), and I have no problem with suggesting people trade down who can't afford their payment, need lower costs for other reasons (approaching retirement), etc... People don't spend enough time looking at the impacts of what they do. I also appreciate you suggesting they are moving into owning at a better economic circumstance than they currently have. In the end, it shows you recognize the value of ownership.

 

[czygvtwkr]

The people I bought my house off had only owned it for just three years so most of their payments were still interest. Their payments were approximately $1200 a month (remember most was still going to interest). They also were paying for another house that they just bought in Minnesota.

People in this area change houses fairly often it seems so I figure most are still in the early portion of their 30 year mortgage. So I don't see $1k a month being that bad of an off the cuff estimate. Now if they are near the end of their loan they are hardly loosing anything by waiting.

Its really all in the amortization tables.

 

[teambenya]

And those amortization tables just happen to be handy...

Mortgage Calculator -- Bankrate.com

Table for a 200k mortgage

Keep in mind that the rate can make a big difference as well. you're looking at 1300/mo+ at 7%, while friday's rate on 30/fixed was 5.57 and 5.81 APR, so you're looking at 1174/mo instead.

There's an old addage about paying double your principle payment on your mortgage. The rationale is that if the principle is being paid down 2x a month, it's reducing the ammortization of interest greatly over the life of the loan. You're looking at 5 years before that payment becomes more than 300/mo on principle, but for every month you do it you can be cutting another month off of the time it will take you to complete the payoff....

 

[FromTexas]

The people I bought my house off had only owned it for just three years so most of their payments were still interest. Their payments were approximately $1200 a month (remember most was still going to interest). They also were paying for another house that they just bought in Minnesota.

People in this area change houses fairly often it seems so I figure most are still in the early portion of their 30 year mortgage. So I don't see $1k a month being that bad of an off the cuff estimate. Now if they are near the end of their loan they are hardly loosing anything by waiting.

Its really all in the amortization tables.

And for them you are absolutely correct.

 

[refi-rep]

Keep in mind that the rate can make a big difference as well. you're looking at 1300/mo+ at 7%, while friday's rate on 30/fixed was 5.57 and 5.81 APR, so you're looking at 1174/mo instead.

There's an old addage about paying double your principle payment on your mortgage. The rationale is that if the principle is being paid down 2x a month, it's reducing the ammortization of interest greatly over the life of the loan. You're looking at 5 years before that payment becomes more than 300/mo on principle, but for every month you do it you can be cutting another month off of the time it will take you to complete the payoff....

You re right on the money. You seem like an honest real estate person, shot me your personal info in my mailbox I have a customer whos looking for someone thats not going to take them for a ride.

 

[teambenya]

You re right on the money. You seem like an honest real estate person, shot me your personal info in my mailbox I have a customer whos looking for someone thats not going to take them for a ride.

Not a problem, it would be my pleasure. I dropped my contact info in your mailbox, I'm looking forward to hearing from you!

 

[somdrenter]

You re right on the money. You seem like an honest real estate person, shot me your personal info in my mailbox I have a customer whos looking for someone thats not going to take them for a ride.

He re-fi, shoot me your contact info so I can see what you have to offer.

 

[rich70]

Wow thanks for the input everyone. I didn't mean to start a fight. Someone put a contract on my house on Saturday so now I have to wait and see. But thank you all for your information.