Breakup. Keep an expensive apartment with a good mortgage?

[irishbelle]

September 2023 update on the bottom of this post

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Hi everyone. I'm 35 y.o and I'm in the middle of a life changing situation concerning finances. Let's see some opinions outside the very small circle with whom I can share these numbers.

I recently broke up with my girlfriend with whom I own an apartment with. Some years ago, we bought this apartment together and, after changing banks a couple of times, I was able to secure a mortgage at 0.90% fixed rate of which there's now 19 years left.

We bought the apartment for 370.000 € + tax, and after recent price drops + real state agents comissions + city tax, etc. we could recover around 335.000 € net if we would sell it.

There's two options here:

A) Sell the apartment. Here I am losing my gf, my pets, my apartment and the 0.90% fixed mortgage I was able to get. This would make me lose money with the sale and lose all the money we put through these years into installing a new shower, fixed furniture, fixing electrical stuff, extra community costs to fix the building etc. which is 10.000+ €.

B) Buy her out. That means giving her all my current savings (except around 15k in pension plans that I don't have access to) and getting a 65.000 € loan at 7,25%. This also means paying the loan aggressively to lose the minimum possible on interest and having to check all my costs all this time to be able to make it. On the long run, the apartment can go up to 500k or more (when I changed to the 0,90% mortgage, 2 years after buying, it was valued at almost 400.000 € from the original 370.000 €).

Option A would allow me to go live in a very small & far apartment (I would spend 150.000 € or so on it) but with an expensive current market conditions mortgage (3,5%+ fixed mortgage). In this scenario, I would be able to invest 50%+ of my year salary, do holidays, etc. but would take almost double the time to commute to work. On the other hand and with my current salary situation, this is a good starting point towards achieving financial freedom, which is/was a goal of mine.

Option B is a hard life for around 3 years (because I would like to cancel the loan as fast as possible, but I can pay it in 8) and then having an asset than will go up high in value over time. The starting month would mean 58% of my income dedicated towards the house (mortgage + loan) but I would make early installment payments every month towards lowering the monthly quota of the loan and would quickly reduce the % of my income dedicated to this "investment". The problem here is that I get my yearly salary spread in 15 payments, so it would be a bit challenging in the beginning. Moreover, I'm working and studying at the moment, with not much time for social life so less going out/restaurants/holidays is not an issue for the first two years.

Also, with option B I could rent one or even two rooms of the apartment to help cover costs. Ideally, I would like to live alone, but I could get extra income from renting rooms if I would really need it.

What would you do in my situation and why?

UPDATE: may 2023

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Apartment is located in the city center of a major european capital with a lot of housing demand.

Apartment buying price: 370.000 € + 10% tax

Current market price: 335.000 € - 350.000 € according to real state agents.

Mortgage debt left: 234.000 €

My current savings in cash: 46.000 € (+15k in pension plans + 3k as an emergency fund)

I should buy her out of (her net value + tax + costs): 111.000 €

My yearly brut salary: 65.000 € (around 3.700 € net/month, spread uneven over 15 payments, not 12)

Monthly payment for the mortgage: 1.124 €

Monthly payment for a 65.000 € loan: 895 € / month

I would aggressively make installments on the loan to lower quota.

I can rent 2 rooms for around 500 € / month each one, if needed (apartment has 4 rooms, I use 2)

UPDATE: september 2023

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I decided to keep the apartment. The bank didn't want to keep the 0,90% if we changed our conditions (one person out of the mortgage) and my ex-gf didn't want to keep her name on the current conditions, so I had to look for a new mortgage for myself.

My mortgage broker was able to get me a 2,7% fixed-rate mortgage instead of the 4% that the same bank was offering me when I entered their offices on my own. Other banks were offering me 3-3,5%, so a mortgage under 3% feels good, although I lost the 0,90%...

To buy her out, I had to pay her 108k of which:

- I put myself around 58k.

- The bank increased the debt from 232k to 290k.

- Mortgage time increased from 18 years remaining to 29 years.

- My monthly payment now is 1.205 €/month.

- I had to get a loan of 10k to buy her part of the furniture and to cover some expenses like the mortgage broker fee and her increase on the price of her part after having agreed to the price for weeks, but that's another story... Anyway, this loan is 150 €/month for 8 years at 9,5%. I'm already at 8k remaining and I plan to cancel it completely in january - february 2024.

I'm currently renting no rooms to anyone, I'm enjoying living alone to be honest. Also, if I lose my job I can rent out 3 rooms and I'd almost be financially free (all my minimum living costs covered - 1.700 €/month), but I value peace over money, at least for now.

My next big decision is on what to do next years: lowering my mortgage monthly payment, investing in index funds or investing in dividend income funds, but that would need a whole new discussion.

Last but not least, thank you all for your comments, suggestions, support, etc. you guys rock! best of luck to everyone in your financial future

 

[jamesrawlings973]

@irishbelle Rent/airbnb the rooms while you live there. It will suck for the next 3 years or so, but the long term value upside you will have is far greater

 

[elise82]

@jamesrawlings973 Totally go with this. The loan will count as a business expense and you’ll have it paid off in no time. Well certainly quicker.

 

[amyjh38]

@irishbelle Can you rent the apartment to someone else? Split the monthly income from the rent between the two of you and enjoy 0.9% rate as long as it lasts. Go buy or rent another apartment only for yourself.

 

[irishbelle]

@amyjh38 Not possible. She wants to go away of the city and forget about the apartment.

 

[bojan]

@irishbelle But can you buy her out and rent it out at a price that covers some of the added expenses, allowing you to tackle the loan?

Or does the apartment layout allow for a roommate?

 

[irishbelle]

@bojan As I said in the main post, there's 4 rooms in the apartment of which I use 2 to live and work/study so there's 2 free.

There's also 2 bathrooms, so I could easily rent 1 room + bathroom or even two rooms, but that would be a bit too much for using the kitchen, etc. etc. I think.

 

[johnuaapple1]

@irishbelle In your shoes, I would probably sell and start over somewhere else. Financially the loan on top of mortgage thing may make sense but 1) removing yourself from social activities "because you're working and studying so you have no time anyways" (while the reason would mainly be no money for entertainments) it's not what you may emotionally need in the following months 2) doing so to pay for a house where you lived with your ex-partner, sure it's a good idea? 3) also, you sure that the price of the house will go up and up? 4) starting over in a smaller place where you can save and invest more aggressively is probably going to give you a better return over time compared to having a good mortgage on a good house (don't know where you live but few housing markets beat the stocks market nowadays)

 

[irishbelle]

@johnuaapple1 Thanks man. I updated the post with numbers for if it makes more sense.

 

[nic_truthinlove]

@irishbelle I'd go with A) if it were me, its hard really hard but it sounds like you will put a ton of strain and financial stress on yourself to buy her out. Its better to have a clean break with these things and you've only been paying on it for a year. 60% of your income just to the house isn't sustainable, things go wrong and you have to live.

A clean break is best and the interest rates although higher are still historically low. Thats me, but it sucks, if my SO left I don't know what would happen either, good luck

 

[irishbelle]

@nic_truthinlove Thanks man. I updated the post with numbers for if it makes more sense.

 

[jstigga]

@irishbelle To do the math asset wise, we would need more details: how much is left on the initial loan, how much your ex asks for the buyout, how much you have in savings and how much you earn per year.

Then, you have to think a bit about the future plans, even though it may be hard at this point. In plan (a) you would get a smaller apartment further away. It's ok if you plan to stay single for the next 5+ years.

If you see yourself having a family, then a few hard years in plan (b) will definitely pay off.

Please consider also your career plans.. if you have a stable job that you plan to keep long-term - go plan (b).
If you plan to change jobs after you finish your studies, better be mobile & ready to relocate. Hence, plan (a) is better.

 

[irishbelle]

@jstigga Thanks for your reply. I updated the main post with my numbers at the end.

 

[jstigga]

@irishbelle the buyout price of 110k seems to high to me. In plan A, if you sell the apartment now, you will have to split a maximum of 116k (350k-234k) that will remain after reimbursement of the loan. Assuming that you have a 50/50 arrangement, the worst possible outcome is her getting 58k. So the starting point for buyout negotiation must be 60k.

Be firm in your negotiation position: either she gets 60-70k now or 50-60k when apartment sells and until then, she must contribute to mortgage payments & building fees.

In general, it may be considered risky to poor all your savings into one asset. So if you go Plan B, you should swiftly take 1-2 room mates to share expenses, rebuild your emergency fund and pay off the higher interest loan (btw, negotiate that the bank does not apply early payment fees).

Looking at your monthly budget, living single on 1.7k/month (after loan payments) in an EU capital is absolutely doable and depending on lifestyle, to put additional 500-900 Eur/month towards paying the loan.

 

[irishbelle]

@jstigga She has more ownership % than me, that's why I have to pay her 111.000 € (that includes taxes and several costs as well).

Renting a room for an additional 500 €/month that I would put immediately towards lowering the loan monthly quota is indeed the best option, since there's 2 bathrooms in the flat and we could do a kind of very separate life. Renting 2 rooms would get messier and I would try to avoid it.

As you say, my budget fits and option B is doable, it's just a mindset of: am I good with owing 234.000 € + 65.000 €? I think most of the population wouldn't sleep good with it, but I think it's doable.

Worst case scenario (losing job) I can rent the full apartment out (all of its costs covered), come back to my parents and cancel the loan as fast as possible with unemployment benefits or lower income.

 

[jstigga]

@irishbelle Best way to deal with this anxiety is to have a plan.

Make a monthly budget and start testing it from tomorrow.

Draw-up the rainy day scenarios, what if you loose your job, what if you have an accident or get seriously sick, what if you will have an unexpectedly large expense to manage, what if you will get a job offer from a different country...

if your contingencies involve other people, make sure you have their support.

If you don't have sustainable contingencies or you are not prepared to take the risks, don't go plan b.

 

[irishbelle]

@jstigga I have several excel simulations for several scenarios. I have lived now all april here on my own so I know the cost of light, water, etc. for 1 person and they are what I was expecting or slightly less.

My main option is B even without renting out any room.

Thanks for your answers.

 

[jstigga]

@irishbelle You've got it covered. good luck, man!
Come back in a year. It would be interesting to get an update!

 

[irishbelle]

@jstigga Here I will be in a year and also when the loan is fully paid off. Bookmark this thread.

 

[resjudicata]

@irishbelle Keep the flat. With that mortgage it’s totally worth it, and the value will increase (this was revealed to me in a dream).

Otherwise you’ll be back on square one but with a higher interest and shittier apartment, instead of this fancy one which will appreciate as soon as the damn war is over. Three years is a fairly short time to go without holidays or such, and like you said, you can get extra income by renting out the rooms.

This flat gives you options you otherwise won’t have, even if you’ll have money in the bank. And beside that, rents have gone up horrendously during pandemic and the Ukraine war. I looked around recently and was shocked. The