100% Mortgage with **** credit history?
Discussion
I forgot about the "being sick paying the landlord".
Once again, my favourite phrase of the financially illiterate.
You have to pay someone for a place to live.
It's either the bank or a landlord.
(Or if you buy in cash you are paying a significant opportunity cost.)
If the OP is paying £500 a month, let's call it a £150k property (4% yield).
With the OP's credit history and zero deposit they won't get a 4% rate (or any rate) - it would be what 5-6% best case?
So their sickness at paying £500 to the landlord becomes £700 a month to the bank, just for the interest.
Not forgetting paying several thousand to conveyancing solicitors, mortgage arrangement fees, valuations, surveys etc...
Rent isn't "throwing money away" as idiots often whinge - it's paying for your accommodation.
Once again, my favourite phrase of the financially illiterate.
You have to pay someone for a place to live.
It's either the bank or a landlord.
(Or if you buy in cash you are paying a significant opportunity cost.)
If the OP is paying £500 a month, let's call it a £150k property (4% yield).
With the OP's credit history and zero deposit they won't get a 4% rate (or any rate) - it would be what 5-6% best case?
So their sickness at paying £500 to the landlord becomes £700 a month to the bank, just for the interest.
Not forgetting paying several thousand to conveyancing solicitors, mortgage arrangement fees, valuations, surveys etc...
Rent isn't "throwing money away" as idiots often whinge - it's paying for your accommodation.
walm said:
I forgot about the "being sick paying the landlord".
Once again, my favourite phrase of the financially illiterate.
You have to pay someone for a place to live.
It's either the bank or a landlord.
(Or if you buy in cash you are paying a significant opportunity cost.)
If the OP is paying £500 a month, let's call it a £150k property (4% yield).
With the OP's credit history and zero deposit they won't get a 4% rate (or any rate) - it would be what 5-6% best case?
So their sickness at paying £500 to the landlord becomes £700 a month to the bank, just for the interest.
Not forgetting paying several thousand to conveyancing solicitors, mortgage arrangement fees, valuations, surveys etc...
Rent isn't "throwing money away" as idiots often whinge - it's paying for your accommodation.
But still vastly worse than paying the bank as you dont own it. Once again, my favourite phrase of the financially illiterate.
You have to pay someone for a place to live.
It's either the bank or a landlord.
(Or if you buy in cash you are paying a significant opportunity cost.)
If the OP is paying £500 a month, let's call it a £150k property (4% yield).
With the OP's credit history and zero deposit they won't get a 4% rate (or any rate) - it would be what 5-6% best case?
So their sickness at paying £500 to the landlord becomes £700 a month to the bank, just for the interest.
Not forgetting paying several thousand to conveyancing solicitors, mortgage arrangement fees, valuations, surveys etc...
Rent isn't "throwing money away" as idiots often whinge - it's paying for your accommodation.
Same as leasing a car. Except at the end of your life when you no longer need to work, you can stop paying for a lease car, you cant stop paying for somewhere to live and having bought, you wont need to.
p1stonhead said:
But still vastly worse than paying the bank as you dont own it.
I think you misunderstand that there is a difference between interest payments and principal payments.If you just pay the interest (in this case the c.£700 at 5.5% rate I was referring to) then you don't end up owning it either.
Principal payments are just savings - and you can do that anywhere, you don't need a house.
walm said:
p1stonhead said:
But still vastly worse than paying the bank as you dont own it.
I think you misunderstand that there is a difference between interest payments and principal payments.If you just pay the interest (in this case the c.£700 at 5.5% rate I was referring to) then you don't end up owning it either.
Principal payments are just savings - and you can do that anywhere, you don't need a house.
walm said:
p1stonhead said:
Do interest only mortgages exist anymore? I didnt think they did.
That doesn't matter.The interest part of the payment still exists and that's what you need to compare like-for-like vs. the rent.
And they do exist - I have one!
Only right at the front end is it so skewed in favour of the interest element.
At the end, its nearly all capital being paid off.
You having an interest only mortgage is why you dont think buying is any better, coz effectively for you it isnt! For me and many others, it is.
p1stonhead said:
Of course the interest part still exists, but eventually it doesnt.
Only right at the front end is it so skewed in favour of the interest element.
At the end, its nearly all capital being paid off.
You having an interest only mortgage is why you dont think buying is any better, coz effectively for you it isnt! For me and many others, it is.
I am saving alongside my mortgage and right now it is massively outperforming the very low interest rate I would be getting by paying my mortgage down. I am massively positive on owning property but even more so on financial literacy.Only right at the front end is it so skewed in favour of the interest element.
At the end, its nearly all capital being paid off.
You having an interest only mortgage is why you dont think buying is any better, coz effectively for you it isnt! For me and many others, it is.
Again, no offence but you just don't understand how mortgages really work.
All you have done by paying off the debt is to increase your equity in the house.
That has a massive opportunity cost, since like me, you could have put those funds elsewhere and made a greater (or lower!) return.
If you had a 4% mortgage and a guaranteed savings product that generated 5% returns (post-tax) then you would be an idiot to pay off the mortgage.
People just like having the savings forced upon them and keeping it simple.
However, it is just a savings choice, nothing to do with your exposure to property really.
You and I both have 100% exposure to the price of our houses!
walm said:
p1stonhead said:
Of course the interest part still exists, but eventually it doesnt.
Only right at the front end is it so skewed in favour of the interest element.
At the end, its nearly all capital being paid off.
You having an interest only mortgage is why you dont think buying is any better, coz effectively for you it isnt! For me and many others, it is.
I am saving alongside my mortgage and right now it is massively outperforming the very low interest rate I would be getting by paying my mortgage down. I am massively positive on owning property but even more so on financial literacy.Only right at the front end is it so skewed in favour of the interest element.
At the end, its nearly all capital being paid off.
You having an interest only mortgage is why you dont think buying is any better, coz effectively for you it isnt! For me and many others, it is.
Again, no offence but you just don't understand how mortgages really work.
All you have done by paying off the debt is to increase your equity in the house.
That has a massive opportunity cost, since like me, you could have put those funds elsewhere and made a greater (or lower!) return.
If you had a 4% mortgage and a guaranteed savings product that generated 5% returns (post-tax) then you would be an idiot to pay off the mortgage.
People just like having the savings forced upon them and keeping it simple.
However, it is just a savings choice, nothing to do with your exposure to property really.
You and I both have 100% exposure to the price of our houses!
If you have enough to pay your house off in full at the end of your mortgage term fair play. I over pay mine by £1000 a month and will have it paid off 18 years early (last check) which is nice.
Of course I could have put the money elsewhere, but so could anyone, the majority are risk adverse when it comes to investing. I have money elsewhere doing okay.
We will both still end up with something at the end of the day at the price we paid for it many decades ago. Those renting wont. You think all those renting (and renting my house would actually cost me £500 more than my capital mortgage repayment) are savvy enough to be investing smartly enough to buy a house outright when the time comes?
walm said:
I am saving alongside my mortgage and right now it is massively outperforming the very low interest rate I would be getting by paying my mortgage down. I am massively positive on owning property but even more so on financial literacy.
Again, no offence but you just don't understand how mortgages really work.
All you have done by paying off the debt is to increase your equity in the house.
That has a massive opportunity cost, since like me, you could have put those funds elsewhere and made a greater (or lower!) return.
If you had a 4% mortgage and a guaranteed savings product that generated 5% returns (post-tax) then you would be an idiot to pay off the mortgage.
People just like having the savings forced upon them and keeping it simple.
However, it is just a savings choice, nothing to do with your exposure to property really.
You and I both have 100% exposure to the price of our houses!
You are forgetting something.Again, no offence but you just don't understand how mortgages really work.
All you have done by paying off the debt is to increase your equity in the house.
That has a massive opportunity cost, since like me, you could have put those funds elsewhere and made a greater (or lower!) return.
If you had a 4% mortgage and a guaranteed savings product that generated 5% returns (post-tax) then you would be an idiot to pay off the mortgage.
People just like having the savings forced upon them and keeping it simple.
However, it is just a savings choice, nothing to do with your exposure to property really.
You and I both have 100% exposure to the price of our houses!
As the balance decreases so does the interest calculation so your investments have to perform better for longer.
p1stonhead said:
We will both still end up with something at the end of the day at the price we paid for it many decades ago. Those renting wont. You think all those renting (and renting my house would actually cost me £500 more than my capital mortgage repayment) are savvy enough to be investing smartly enough to buy a house outright when the time comes?
1. The inflation argument is why I am strongly positive about owning property.2. If you think your rent would be more than a CAPITAL REPAYMENT mortgage then I strongly suspect you haven't taken into account the enormous opportunity cost of the equity in your house. Again you are not comparing like-for-like. Of course your mortgage would be tiny compared to rent if you have 50%+ LTV for example.
3. I applaud the diligence enforced by repayment mortgages for the exact reason you point out.
However, people still fail to understand the maths behind interest and principal and how it compares to rent.
Sharted said:
You are forgetting something.
As the balance decreases so does the interest calculation so your investments have to perform better for longer.
I may be missing something here but I am pretty sure that's wrong.As the balance decreases so does the interest calculation so your investments have to perform better for longer.
Repayment mortgages are exactly the same as paying the interest and saving in a bank account with a guaranteed interest rate equivalent to your mortgage rate.
Try it in excel.
For example 5 annual installment payments of £35.6k to cover a £150k loan at 5%.
So take out the £7.5k each month to cover the interest.
You are left with £27k ish to put into savings each year.
Remembering to compound that, if you sum up each payment as it grows at the 5% rate you get to exactly £150k.
walm said:
I may be missing something here but I am pretty sure that's wrong.
Repayment mortgages are exactly the same as paying the interest and saving in a bank account with a guaranteed interest rate equivalent to your mortgage rate.
Try it in excel.
For example 5 annual installment payments of £35.6k to cover a £150k loan at 5%.
So take out the £7.5k each month to cover the interest.
You are left with £27k ish to put into savings each year.
Remembering to compound that, if you sum up each payment as it grows at the 5% rate you get to exactly £150k.
Mortgages are nearly all 'daily interest' these days so:Repayment mortgages are exactly the same as paying the interest and saving in a bank account with a guaranteed interest rate equivalent to your mortgage rate.
Try it in excel.
For example 5 annual installment payments of £35.6k to cover a £150k loan at 5%.
So take out the £7.5k each month to cover the interest.
You are left with £27k ish to put into savings each year.
Remembering to compound that, if you sum up each payment as it grows at the 5% rate you get to exactly £150k.
I borrow £100k over 25 years on repayment. Early repayments are mainly interest but later into the term I'm only paying interest on a quickly reducing amount of capital therefore paying less interest over the 25 years.
You borrow £100k over 25 years on interest only. You pay interest on the full amount from day one to the last payment 25 years later.
An extreme example to show how it works, you would most likely make some kind of capital repayments during the term but, either way, the repayment loan will be more efficient in terms of total interest paid because of the daily interest calculation.
Sharted said:
I borrow £100k over 25 years on repayment. Early repayments are mainly interest but later into the term I'm only paying interest on a quickly reducing amount of capital therefore paying less interest over the 25 years.
You borrow £100k over 25 years on interest only. You pay interest on the full amount from day one to the last payment 25 years later.
This example makes no sense - sorry - it has been a long day for me!You borrow £100k over 25 years on interest only. You pay interest on the full amount from day one to the last payment 25 years later.
On repayment you pay the same amount every time. It is a static defined constant amount.
Sure OF COURSE your debt declines over time.
That’s true when you make savings too!
To repeat – your net balance at the end will be ZERO in both of our examples.
We will have both spent exactly the same each month.
It makes absolutely no difference.
Having daily interest just means the bank isn’t ripping you off by keeping your money for a few days without paying interest on it if the payment happened to fall on a Friday say.
As soon as you invest in the FTSE your money goes to work!! Same thing.
Taking the long term vision, someone who is 40 and with the OP's financial situation - if they DO buy a house now they will have paid it off by the time they're 65-70, so just in time for retirement.
If they DON'T buy a house in the next 5 years, or even ever, then there needs to be some thought into how to afford housing passed retirement age.
If they DON'T buy a house in the next 5 years, or even ever, then there needs to be some thought into how to afford housing passed retirement age.
jammy_basturd said:
Taking the long term vision, someone who is 40 and with the OP's financial situation - if they DO buy a house now they will have paid it off by the time they're 65-70, so just in time for retirement.
If they DON'T buy a house in the next 5 years, or even ever, then there needs to be some thought into how to afford housing passed retirement age.
This is my quandary. If I don't buy soon (or at least try to) then I'm going to be renting for the rest of my life. And most likely working for it too. My parents have their house paid off but they're only in their late 60's and certainly seem to have plenty of life in them yet.If they DON'T buy a house in the next 5 years, or even ever, then there needs to be some thought into how to afford housing passed retirement age.
MissChief said:
jammy_basturd said:
Taking the long term vision, someone who is 40 and with the OP's financial situation - if they DO buy a house now they will have paid it off by the time they're 65-70, so just in time for retirement.
If they DON'T buy a house in the next 5 years, or even ever, then there needs to be some thought into how to afford housing passed retirement age.
This is my quandary. If I don't buy soon (or at least try to) then I'm going to be renting for the rest of my life. And most likely working for it too. My parents have their house paid off but they're only in their late 60's and certainly seem to have plenty of life in them yet.If they DON'T buy a house in the next 5 years, or even ever, then there needs to be some thought into how to afford housing passed retirement age.
Once done, then think of a way of getting a deposit together, again, no mortgage without at least 5%.
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