Paying off Mello Roos

[paranoid]

Interest rate is historic low now. MR in places like 4S ranch has a 40-year life, and has a rate close to 10% (my rough guestimate). MR can be increased by 2% every year. So my question is: is it worth it to pay off completely your MR now? This saves alot of money if you intend to stay for a long time. What do you guys think?

[Cube]

I’ve been pondering the idea. I can’t come up with a good model of how paying it off would translate into eventual resale value.

Given that today it is a hidden cost, I feel that paying it off will be a hidden benefit, difficult to market to future buyers. “Hey, you don’t have to pay this thing that you already weren’t considering as part of the purchase price… That makes this house more valuable by X much, so pay me more.”

[4slive]

It’ll limit your buyer’s pool. But smart buyer with enough cash surely willing to buy house w/o MR. It all matters the monthly payment!

[ocrenter]

Need more info, what is the payoff? Should be able to obtain the info at the county clerks office.

[paranoid]

The case I am looking at: current mello Roos at about $5700 per year. It will last for about 30 years. The payoff now is about $58000. The implied rate is close to 9%. While the current 30 year mortgage is below 4%.

[ocrenter]

[quote=paranoid]The case I am looking at: current mello Roos at about $5700 per year. It will last for about 30 years. The payoff now is about $58000. The implied rate is close to 9%. While the current 30 year mortgage is below 4%.[/quote]

hmmm, so over 30 years you’ll be looking at $171k.

meanwhile, you could do a line of credit say at 4%. let’s say you pull a 15 year mortgage at 4% to pay for the MR amount, your payment would be lower, it would be deductible, and it’ll be paid off at half the time or less. let’s say plans change and you end up moving in 15 years, there’s really no loss for you either.

[bearishgurl]

[quote=Cube]I’ve been pondering the idea. I can’t come up with a good model of how paying it off would translate into eventual resale value.

Given that today it is a hidden cost, I feel that paying it off will be a hidden benefit, difficult to market to future buyers. “Hey, you don’t have to pay this thing that you already weren’t considering as part of the purchase price… That makes this house more valuable by X much, so pay me more.”[/quote]

Future buyers who take mortgages out will be constrained by the appraisal at the time, which will reflect its value as if it still has the MR encumbrance. This is due to the vast majority of closed sales still having the encumbrance.

I don’t think you could get your investment of $58K back unless you reside there ten years or more. And at that time, you may obtain the same sales price if you leave the MR in place.

I don’t see a way around it that makes sense unless you are *certain* you will hang onto the property for a very long time as life can throw you many curveballs.

[bearishgurl]

paranoid, let me ask you, “How long would it take you to pay $58K in MR by paying it on your tax bill semi-annually when it is due?”

That amount of years/months is the “break-even” point after which you will pay more than $58K on your MR obligation.

Are you CERTAIN you will you keep the property that long?

[all]

Did you get the numbers from PUSD, or from the builder?

[sdduuuude]

Not a bad idea. The delta between 9% and 4% is pretty compelling.

As a shopper, I would say the Mello Roos is definitely not a hidden cost. In fact, when comparing properties and estimating value/asking price I explicitly convert the monthly MR back to a loan amount just to see how much less to offer.

So, I think you would get the value back in a sale. It would distinguish your house from others explicitly, based on cash instead of canyon view or stunning decor.

This thread suggests that I should check on the MR payout amounts and explicitly deduct that from the value of houses. It’s a good way to compare like houses with different MR payout amounts and different MR payoff schedules.

Does anyone know – would it be possible, when buying, to just add an MR payoff amount into the mortgage ?

[sdduuuude]

[quote=paranoid]The case I am looking at: current mello Roos at about $5700 per year. It will last for about 30 years. The payoff now is about $58000. The implied rate is close to 9%. While the current 30 year mortgage is below 4%.[/quote]

Yes – where did you get the number? Who do you ask ?

[sdduuuude]

[quote=bearishgurl]Future buyers who take mortgages out will be constrained by the appraisal at the time, which will reflect its value as if it still has the MR encumbrance.[/quote]

Future buyers will also be constrained by the fact that the bank will explicitly add the monthly debt/payment burden into the forumla to calculate what kind of payment you can make. Removing the $475 payment helps you take on more debt.

So, you would have a $4000 morgage payment plus $475 per month MR or you could have a $4475 mortgage payment, allowing you to borrow more.

[paranoid]

sduuuude: I called the phone number on my property tax bill, and the company in charge of the MR called back with payoff number.

[sdduuuude]

Ah, thanks.

I don’t have a MR on my tax bill (Clairemont, you know).

[earlyretirement]

[quote=paranoid]sduuuude: I called the phone number on my property tax bill, and the company in charge of the MR called back with payoff number.[/quote]

Paranoid,

Did you have to pay anything for this information? I was told that in my area (Santaluz) that there is a fee to get the payoff quote.

I will probably end up paying off our Mello Roos as we plan to be in the house for the long-term (15+ years) until the kids are done with school.

It does seem to make sense if you are absolutely sure you will be in the house for the long haul.

[Author]

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