1 Goal

The primary goal of this analysis is to evaluate the financial implications of purchasing a property under different mortgage scenarios to inform a decision on whether to opt for a conservative approach (smaller property) or take on maximum debt (larger property), with a view to selling and trading up over time.

Key questions to consider include:

What is the repayment burden (monthly payments and total interest) for different property values and loan terms?
How does equity buildup vary across scenarios, and how does this impact trade-up potential?
How sensitive is the decision to changes in interest rates, mortgage terms, or early principal repayments?
Which strategy (conservative vs. maximum debt) aligns best with financial goals given potential market conditions?

2 Assumptions

The analysis is based on the following assumptions:

Property Values: $400,000 (Property 1) and $600,000 (Property 2).
Deposit: $100,000 for both properties.
Loan Amounts: $300,000 (Property 1) and $500,000 (Property 2).
Interest Rate: Base rate of 6% annually (fixed), with sensitivity analysis for 4% and 8%.
Mortgage Terms: 15, 25, and 40 years, with sensitivity analysis for term changes.
Extra Repayment: Optional $50,000 annual principal payment for the first five years in sensitivity analysis.
Upfront Costs: Stamp duty ($16,667 for Property 1, $25,000 for Property 2) and legal fees ($2,667 for Property 1, $4,000 for Property 2), scaled proportionally.
Income: Assumed annual household income of $100,000 for affordability calculations.
Affordability Threshold: Monthly housing costs not to exceed 36% of gross monthly income (~$3,000).
Selling Costs: 6% of property value upon sale.
No Property Value Appreciation: Assumed for simplicity (can be adjusted).

3 Tables

3.1 Mortgage Summary

Mortgage Summary: Loan Amounts, Monthly Payments, and Total Interest
Term	Property	Loan_Amount	Monthly_Payment	Total_Interest
15 Years	Property 1 ($400,000)	300,000	2,532	155,635
15 Years	Property 2 ($600,000)	500,000	4,219	259,503
25 Years	Property 1 ($400,000)	300,000	1,933	279,834
25 Years	Property 2 ($600,000)	500,000	3,222	466,258
40 Years	Property 1 ($400,000)	300,000	1,651	491,765
40 Years	Property 2 ($600,000)	500,000	2,751	820,616

3.2 Equity and Net Proceeds

Equity and Net Proceeds After 5, 10, and 15 Years
Property	Term	Year	Equity	Net_Proceeds
Property 1 ($400,000)	15 Years	5	172003	148003
Property 1 ($400,000)	15 Years	10	269123	245123
Property 1 ($400,000)	15 Years	15	400000	376000
Property 1 ($400,000)	25 Years	5	130210	106210
Property 1 ($400,000)	25 Years	10	170960	146960
Property 1 ($400,000)	25 Years	15	225925	201925
Property 1 ($400,000)	40 Years	5	110535	86535
Property 1 ($400,000)	40 Years	10	124746	100746
Property 1 ($400,000)	40 Years	15	143914	119914
Property 2 ($600,000)	15 Years	5	219935	183935
Property 2 ($600,000)	15 Years	10	381709	345709
Property 2 ($600,000)	15 Years	15	599917	563917
Property 2 ($600,000)	25 Years	5	150374	114374
Property 2 ($600,000)	25 Years	10	218321	182321
Property 2 ($600,000)	25 Years	15	309971	273971
Property 2 ($600,000)	40 Years	5	117512	81512
Property 2 ($600,000)	40 Years	10	141134	105134
Property 2 ($600,000)	40 Years	15	172995	136995

4 Charts

4.1 Equity Buildup

4.2 Monthly Payment Split

Share of monthly payment toward interest and paying down principal.

5 Sensitivity Analysis

5.1 Interest Rate

Interest rate Sensitivity analysis on 4% and 8% per annum rates.

rates <- c(4, 6, 8)
sensitivity_data <- data.frame()
for (rate in rates) {
  for (prop in 1:2) {
    for (term in terms) {
      payment <- calculate_monthly_payment(loan_amounts[prop], rate, term)
      amort <- calculate_amortization(loan_amounts[prop], rate, term, 100000)
      equity_5 <- amort$Equity[min(61, nrow(amort))]
      total_interest <- sum(amort$Interest[2:nrow(amort)]) # Sum interest from month 1 onward
      sensitivity_data <- rbind(sensitivity_data, data.frame(
        Property = c("Property 1 ($400,000)", "Property 2 ($600,000)")[prop],
        Term = paste(term, "Years"),
        Interest_Rate = paste(rate, "%"),
        Monthly_Payment = payment,
        Equity_After_5_Years = equity_5,
        Total_Interest = total_interest
      ))
    }
  }
}

sensitivity_data$Monthly_Payment <- round(sensitivity_data$Monthly_Payment)
sensitivity_data$Equity_After_5_Years <- round(sensitivity_data$Equity_After_5_Years)
sensitivity_data$Total_Interest <- round(sensitivity_data$Total_Interest)

Sensitivity to Interest Rate Changes
Property	Term	Interest_Rate	Monthly_Payment	Equity_After_5_Years	Total_Interest
Property 1 ($400,000)	15 Years	4 %	2219	180818	99436
Property 1 ($400,000)	25 Years	4 %	1584	138719	174948
Property 1 ($400,000)	40 Years	4 %	1254	116840	301702
Property 2 ($600,000)	15 Years	4 %	3698	234675	165748
Property 2 ($600,000)	25 Years	4 %	2639	164465	291795
Property 2 ($600,000)	40 Years	4 %	2090	128067	502836
Property 1 ($400,000)	15 Years	6 %	2532	172003	155635
Property 1 ($400,000)	25 Years	6 %	1933	130210	279834
Property 1 ($400,000)	40 Years	6 %	1651	110535	491765
Property 2 ($600,000)	15 Years	6 %	4219	219935	259503
Property 2 ($600,000)	25 Years	6 %	3222	150374	466258
Property 2 ($600,000)	40 Years	6 %	2751	117512	820616
Property 1 ($400,000)	15 Years	8 %	2867	163704	216045
Property 1 ($400,000)	25 Years	8 %	2315	123145	394927
Property 1 ($400,000)	40 Years	8 %	2086	106319	701053
Property 2 ($600,000)	15 Years	8 %	4778	206150	360130
Property 2 ($600,000)	25 Years	8 %	3859	138624	657777
Property 2 ($600,000)	40 Years	8 %	3477	110556	1167419

5.2 Term Sensitivity

Impact of varied mortgage term

terms_extended <- c(10, 15, 25, 40)
term_sensitivity_data <- data.frame()
for (term in terms_extended) {
  for (prop in 1:2) {
    payment <- calculate_monthly_payment(loan_amounts[prop], annual_rate, term)
    amort <- calculate_amortization(loan_amounts[prop], annual_rate, term, 100000)
    equity_5 <- amort$Equity[min(61, nrow(amort))]
    total_interest <- sum(amort$Interest[2:nrow(amort)]) # Sum interest from month 1 onward
    term_sensitivity_data <- rbind(term_sensitivity_data, data.frame(
      Property = c("Property 1 ($400,000)", "Property 2 ($600,000)")[prop],
      Term = paste(term, "Years"),
      Monthly_Payment = payment,
      Equity_After_5_Years = equity_5,
      Total_Interest = total_interest
    ))
  }
}

term_sensitivity_data$Equity_After_5_Years <- round(term_sensitivity_data$Equity_After_5_Years)
term_sensitivity_data$Total_Interest <- round(term_sensitivity_data$Total_Interest)

Sensitivity to Mortgage Term Changes
Property	Term	Monthly_Payment	Equity_After_5_Years	Total_Interest
Property 1 ($400,000)	10 Years	3331	227749	99657
Property 2 ($600,000)	10 Years	5551	312868	166124
Property 1 ($400,000)	15 Years	2532	172003	155635
Property 2 ($600,000)	15 Years	4219	219935	259503
Property 1 ($400,000)	25 Years	1933	130210	279834
Property 2 ($600,000)	25 Years	3222	150374	466258
Property 1 ($400,000)	40 Years	1651	110535	491765
Property 2 ($600,000)	40 Years	2751	117512	820616

5.3 Early Repayment

Impact of early repayment of mortgage principle in the first five years.

Sensitivity to Early Repayment ($50,000/Year for 5 Years)
Property	Term	Scenario	Equity_After_5_Years	Total_Interest	Total_Interest_Saved
Property 1 ($400,000)	15 Years	Extra $50k/Year	400000	129100	26535
Property 1 ($400,000)	25 Years	Extra $50k/Year	360912	253299	26535
Property 1 ($400,000)	40 Years	Extra $50k/Year	341237	465230	26535
Property 2 ($600,000)	15 Years	Extra $50k/Year	450636	232968	26535
Property 2 ($600,000)	25 Years	Extra $50k/Year	381075	439724	26535
Property 2 ($600,000)	40 Years	Extra $50k/Year	348214	794081	26535

6 Conclusion

This analysis provides a framework for evaluating property purchase decisions. The conservative approach ($400,000) offers lower monthly payments and faster equity buildup with extra payments, while the maximum debt option ($600,000) provides higher long-term equity but increases repayment burden. Sensitivity analysis shows that lower interest rates or shorter terms reduce costs, while early repayments significantly boost equity, favoring a proactive repayment strategy if affordable.

Property Purchase Decision Analysis

ML with Grok 3 support

June 30, 2025