Tuesday, July 13, 2010

More on the mortgage front

So it seems in all my calculations yesterday, I failed to notice that Invis was actually suggesting a 35-year amortization, instead of my preferred choice of 25 years.   Before I even got a chance to run some more numbers, Invis also let me know that the rate had dropped to 4.29% for our rental property.  Despite that rate drop, the additional 10 years amortization really makes a huge impact on the numbers, and the differences between our two options are quite a bit more obvious.

Now it seems we would be paying more than $4,000 extra in interest over the next 5 years if we go with Invis, due to the double-whammy of the higher interest rate and the longer amortization.  Another conversation leads me to believe this may not be such a bad thing though.  In fact, it may be beneficial for tax purposes - ideally, the expenses for the condo will come close to the income, so that we are not reaping a huge profit.  So dragging out the payment of the rental property makes a bit of sense in that case.  But if both properties are amortized over 35 years (which doesn't make sense to me), we are looking at an additional $160,000 in interest over the course of the mortgage, compared with the BMO option.  I think there is a very fine line between an amount of interest that is actually helpful to have and the amount that would make me feel like a complete idiot for just continually giving the bank/lender money.  But I gather the question is really would I rather give it to the bank via interest, or the government via taxes?!

Even if we got the rental property amortized over 35 years, and our home over 25 years, we are still looking at more than $60,000 in additional interest over the life of the mortgage compared to the BMO scenario.  I just wish I really had a handle on which was truly the better option for tax purposes.

In any case, I put in a call to BMO to see if it's worth one last try to see whether we can get a refinance through the bank, and so Caroline has kindly agreed to try one more time.  You just never know!  I can only hope.

7 days until we go away now, and apparently if we DO end up getting a refinance, we've got to get an assessment and a lawyer's review all between now and then.

I feel like I need time off from my day job just to sort out the mortgage!!!

2 comments:

  1. In regards to the $60,000 of extra interest and whether you would rather pay it in taxes or extra interest, it would be better to pay it in taxes. A reduction of $60k in interest would increase your profit by $60k, but it would actually only be an increase of about $21k in taxes, assume a 35% tax rate.

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  2. That is good advice, and that was my biggest dilemma! I have sort of taken the stance that I want to maximize profit/minimize expenses, I really have to look at the after-tax profit when comparing numbers. I will use the 35% assumption as a starting point, thank you!

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