Selling a mortgaged home

[Nur Al Sharif]

Hi all,

I've been running some numbers trying to understand long-term gains on residential real estate investments, and came across a scenario that I can't wrap my head around. 

If I take out a $331,500 mortgage at 4% over 30 years (on a $440,000 property), my monthly mortgage payment will be $1582.63. Multiply this by periods 360 = a total payment over 30 years of $569,747.41. 

Say in 5 years time I decide to sell the property, at $440,000, having paid down a small part of the mortgage principal. The total payment remaining on the mortgage would be $474,489.51. Would selling the house result in a net loss due to covering the interest on the mortgage? Or is my understanding of mortgages completely wrong? 

The main thing here is wondering which mortgage balance would be subtracted from the sale of the home (is it the principal remaining, or the total payment that was scheduled to take place over 30 years?)

Thanks in advance, 

Newbie

[Jonathan West]

It’s the principal remaining. The ~$145k in interest payments ($475k-$330k) is accrued over a 30 year period, and is not created on day 1 of your mortgage schedule.

Note that you will still have a hefty interest accrual over a 5 year period. Don’t forget that we generally discuss income producing assets, so typically the property rents will cover these payments (and insurance, taxes, maintenance, vacancy, etc) which means cash in your pocket each month. When evaluating the value of a potential purchase you have to also include this life-of-investment income stream.