Another week, another TVM scenario for you!  You can use any financial calculator to do these, but if you want the BEST, you can get our 10bii Financial Calculator for iPhone/iPad, Android, or Mac!

This week we’re going to buy another house to try and pay off our first house faster! 


THE SCENARIO:

Building off the last couple of articles, we’re going to stick with my mortgage.  To recap, here are the pertinent details:

I put $100,000 down and borrowed $350,000 to buy a house 34 months ago.  The mortgage amortizes fully over 30 years, has monthly payments of $2,241.09,and the rate is 6.625%.  I still owe $338,465.83, and thanks to a generous inheritance from my late Aunt Matilda, I have $100,000 to use to help me with my mortgage.

Instead of paying down my mortgage, however, I’m going to use the inheritance to get another mortgage, this time on a rental house.  It may be strange to try to retire my debt by taking on more debt, but let’s see if I can make this work.

I’m going to buy a $250,000 house, and put $100,000 down.

a) What’s the PV (present value, or initial amount owed) of my loan?

b) If I get a 30-year amortizing mortgage at 3.375%, what’s my payment?

c) If I can get $1,990 in rent from the property each month, and expenses run me 45% of that, what’s my net rent?

d) How much does owning the house cost me or earn me, on average, each month?

e) My home’s mortgage payment is $2,241.09.  How much do I pay out each month if I take both my home’s mortgage and this rental house’s net rent and mortgage into account?


THE SOLUTION:

a) The house costs $250,000 and I borrow all but $100,00 of that.  Therefore, my PV is $150,000.

b) N is 360, I/YR is 3.375, PV is $150,000, and FV is 0.  Solving for PMT, I find that my monthly payment is $663.14 per month.

c) 45% of $1,990 is $895.50.  $1,990 – $895.50 is $1,094.50.  That’s my net monthly income from my new rental house.

d) It earns me $1,094.50, and my mortgage payment is $663.14.  So after my mortgage payment, I get to keep $431.36 per month.

e) My home mortgage costs me $2,241.09, and this rental house earns me $431.36.  So, combined, I pay out $2,241.09 – $431.36 per month.  Doing the arithmetic, my monthly total payment is $1,809.73.

This is the setup; next week, we’ll cover how selling the house after some time has passed can help me pay off my own mortgage.

I hope you enjoyed this week’s article!  See you next time!

Money Blog – Doubling down on houses
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