Bank mortgage loan question

[Sergio Aguinaga]

If I purchase a home of 100,000 and put 20% down on a 30 year fixed rate mortgage at 5% interest, then the loan amount is 80,000. If 5 years later, I want to sell the home and it is worth 120,000, and the loan balance is 72,000 for sake of example, if I do sell for 120,000, would I just need to pay the bank 72,000 and keep the rest for myself or do I have to pay what I would be paying in the remaining years of the mortgage, so principle and interest monthly payment * 12 months * 25 years left = 430*12*25 = 129,000. Hence I would end up owing 9,000 to the bank. Which one is it? Pay current balance or pay the total for remaining years with principle and interest monthly payment.

[James Galla]

Conventional residential loans normally don't include prepayment penalties. I'm going to ignore your assumption because it doesn't really make sense.

I'll give an example, though. Say you purchase a property at $100k with 20k down. This gives you 20k equity out of $100k. So, if you were to resell at 100k, you'd recover your equity of 20k. If the property were to appreciate to $120k, that appreciation represents additional equity value. So, if you were to sell at your new appreciated value of $120k, you'd first pay off that $80k debt and have a remainder of $40k that you net. That's the basic gist.