The Wife and I have been giving serious thought to listing our house after the new year, and it was in the course of a recent discussion that The Wife told me she just wanted to know the “bottom line” in terms of future housing costs.  Her concern is that an upgrade to our current living situation will detrimentally affect our lives.

Right now, The Wife gets to spend a lot of time with our boy all while we are saving more money each month than ever before, all while having a lifestyle that never has us questioning whether we can “afford” the little extras.  Her, very valid and responsible fear, is that a larger mortgage will put us at odds with our long time goal of financial freedom.

Currently, our housing (mortgage, taxes and condominium maintenance) costs us about $2,100.  This does not include utilities, or other ancillary expenses.  As soon as everyone reads that number they will have a gut feeling.  Either they will be shocked that I pay that much for a 2 bedroom condo (if you live in most of the country) or you will think I pay next to nothing if you live in a major city on one of the coasts.

Since we have to start somewhere, I decided to use a standard 30year 5% mortgage, although, The Wife and I have talked about strategically using some type of Adjustable Rate Product, which would lower our rate.

Since property taxes on Long Island are not insiginficant I used two variations to provide her with a range.  Also, since down payment may vary I have provided down payments of both 20% and 25%.

Calculating our Possible Future Housing Expenses

With $9,000 in Property Taxes

House ValueDown PaymentMortgage AmountMonthly MortgageAssumed TaxesMonthly Difference
$400,000$80,000$320,000$1,717$9,000$467
$400,000$100,000$300,000$1,610$9,000$260
$450,000$90,000$360,000$1,932$9,000$582
$450,000$112,500$337,500$1,811$9,000$461
$500,000$100,000$400,000$2,147$9,000$797
$500,000$125,000$375,000$2,013$9,000$663

With $12,000 in Property Taxes

House ValueDown PaymentMortgage AmountMonthly MortgageAssumed TaxesMonthly Difference
$400,000$80,000$320,000$1,717$12,000$717
$400,000$100,000$300,000$1,610$12,000$510
$450,000$90,000$360,000$1,932$12,000$832
$450,000$112,500$337,500$1,811$12,000$711
$500,000$100,000$400,000$2,147$12,000$1,047
$500,000$125,000$375,000$2,013$12,000$913

What Will Affect Our Future Housing Costs

I know it probably seems obvious but:

  1. The mortgage rate we receive.  On a $300,000 mortgage (so the $400K – $100K down payment) if we were to get a loan at 4% it would reduce the monthly expense by $178.  This would make the difference between the two options $82 and $332.  On a $400,000 mortgage (so the $500K – $100K down payment) the payment would be lowered by $238.
  2. Our Property Taxes.  I don’t think we are going to go higher than $12,000 per year, but if property taxes were down to $8,000 then it would reduce all the above numbers by $83.
  3. The Down payment.  I am not sure if we will have enough time to save enough to get higher than the 20 – 25% down payment provided in the examples.    The Wife or I would need to have some crazy months and it isn’t looking like it will turn out that way.

Prior to doing this exercise I thought we would could be in the $500,000 to $525,000 range and the Wife’s gut (which turned out to be pretty close to accurate) told her that our sweet spot would be a closing price of around $425,000. My math makes me believe that we can go a bit higher than what The Wife thought but lower than my original guess.  It will come down to the taxes since the mortgage is just a simple math problem.