Help me answer this mortgage question

[VeggieTable]

This is a totally random question, just to satisfy my own curiosity.

When we bought our house 3 years ago, I remember being surprised by how little money the seller walked away with - about $12,000. She lived in the house for 13 years and sold it for $35,000 more than she paid. I actually just looked back at the closing document, and the money from our purchase went to pay off primary and secondary mortgages, together totaling $5,000 more than she originally paid (for example, if she paid $100,000, she owed $105,000 after 13 years). How is that possible? I guess I mean, how is it possible that she paid down so little of her first mortgage in 13 years and was even able to get a second mortgage?

Obviously I have no stake in the situation and it doesn't affect me at all, it's just something I've been curious about for years. I'm hoping someone on this forum knows more about mortgages than I do b/c I wouldn't even know what to google to figure this out.

[MDM]

I'm hoping someone on this forum knows more about mortgages than I do b/c I wouldn't even know what to google to figure this out.

Here is one way, if you have Excel:

From http://forum.mrmoneymustache.com/mustachianism-around-the-web/amortization-schedule-calculator/msg1219175/#msg1219175:

1. Open a new sheet in Excel
2. Press the "sheet1" tab on the bottom with a right-click
3. "Insert" --> "Spreadsheet solutions" --> "Loan Amortization"

...and you can try various combinations of down payment, interest rate, and loan length.

[SwordGuy]

A couple of ways this can happen, using made up numbers:

1) Buy house for $100k.   House goes up in value to $150k.   Get 2nd mortgage or HELOC to get total balance of both mortgages to be 80% of the house value, in this case, $120k.   

2) Buy house for a lot more, pay it down, but have the house value plummet to $12k over what they owe.

[ysette9]

My parents lived in their house for over 25 years and when they sold it to downsize, they owed more on it than the original purchase price. The price inflation in the time still allowed them to walk away with a nice sum of money (which they then spent on remodeling the new place; they are definitely more Bogleheads than Mustachian). They refinanced and took money out several times to fund big remodel projects.

I remember in high school they undertook the big kitchen remodel. I asked my mother how they were paying for it and she replied that they had done a cash-out refi. Even at the tender age of 14 or whatever I remember thinking that it seemed imprudent. I guess that kind of behavior worked fine for them, but it wouldn't allow me to sleep at night with my own finances. Then again, they have almost always lived in nicer places than I have and have owned nicer things. I still do want a nice place with nice furnishings and the like, it just seems to be a delayed gratification that keeps getting pushed further and further out into the future.

[VeggieTable]

Oh, didn't even occur to me that she owned it during the peak of the housing bubble and ensuing crisis. I bet you all are right that she took out the 2nd mortgage during the period when the house most likely had a higher value. She had the kitchen redone and the whole house painted while she lived there, so I'm sure that's how she financed it.

ysette9, I know just what you mean. My parents were very responsible with money and taught me a lot about finance, but they always liked nice things. I find myself in the same situation of wanting to have nice furniture myself, but also delaying gratification. I can certainly make do with my perfectly functional bedroom dresser that doesn't match and can never justify the expense of a new one.

[ysette9]

I can certainly make do with my perfectly functional bedroom dresser that doesn't match and can never justify the expense of a new one.

For years I've complained about this or that and the response my husband and I always agreed upon was "one day, when we buy a house". Now we are actually in the process of buying a house and I am gleefully dumping all sorts of stuff on craigslist: the old couch set, my old bike, my old skis, the guest bed and mattress, etc. I will soon be looking forward to totally upgrading to nice furniture off of craigslist! :)