Real-Properties.com

To further understand how mortgages work into your profits, one has to understand that the bank mortgage interest is a cost of borrowing that must be factored in at the point of sale. In my previous article, the owner bought the Sunrise Avenue Condominium unit at $500k in Year 2000. In Year 2007, the value of the same unit is valued at $560K. Would the owner make a profit if the property is to be sold at this value in Year 2007?

Let us make some assumptions. Say in Year 2000, the owner borrowed $300k at an average mortgage rate of 3.5% per annum for 20 years. At the end of the 7th year and after 84 payments, calculated monthly, the total interest cost on the property will have amounted to about $64,000. He would then make a loss of $4,000. In reality, his loss would be more than the $4,000/- because of legal fee and bank administrative charges such as those for early repayments.

That is to say, if one is to make a killing from property investment, the value of the property must appreciate more than his cost of borrowing. In this case, in simple maths, the Sunrise Avenue Condominium's value will need to go beyond 3.5% annually in value to justify its investment worth.