Size of your Mortgage
Discussion
walm said:
Again this ridiculous "rent is throwing money away" adage is BS: you either rent from the landlord or the bank - you have to pay someone (or if you own 100%, do yourself out of huge investment income).
If you pay rent for 25 years at a rate equal to the interest payment, the landlord gets the benefit of the increase in the value of the capital asset. You get nothing. If you pay the bank rent instead, any increase in the value of the asset is yours to keep. TartanPaint said:
walm said:
Again this ridiculous "rent is throwing money away" adage is BS: you either rent from the landlord or the bank - you have to pay someone (or if you own 100%, do yourself out of huge investment income).
If you pay rent for 25 years at a rate equal to the interest payment, the landlord gets the benefit of the increase in the value of the capital asset. You get nothing. If you pay the bank rent instead, any increase in the value of the asset is yours to keep. But you could take the thousands you aren't putting into a deposit and buy a MASSIVE option on house prices through a REIT or some other levered property investment.
The point is that living somewhere costs money, there isn't some magic free house when you pay interest on a loan.
Idiots think that there is a magic free house because they don't understand the difference between principal repayments (savings) and just servicing the loan (interest).
walm said:
TartanPaint said:
walm said:
Again this ridiculous "rent is throwing money away" adage is BS: you either rent from the landlord or the bank - you have to pay someone (or if you own 100%, do yourself out of huge investment income).
If you pay rent for 25 years at a rate equal to the interest payment, the landlord gets the benefit of the increase in the value of the capital asset. You get nothing. If you pay the bank rent instead, any increase in the value of the asset is yours to keep. But you could take the thousands you aren't putting into a deposit and buy a MASSIVE option on house prices through a REIT or some other levered property investment.
The point is that living somewhere costs money, there isn't some magic free house when you pay interest on a loan.
Idiots think that there is a magic free house because they don't understand the difference between principal repayments (savings) and just servicing the loan (interest).
If you have £50k deposit, and you invest that in a REIT or some other levered property investment, you will get approximately a rate of return similar to the increase in the value of property over time on your £50k.
If you put that £50k down as a mortgage deposit on a £200k house, you will pay interest roughly equal to the rent, and you will see the same rate of return as the REIT, but you'll see it on the entire £200k, not just your £50k deposit. To get the same from the investment option, you'd have to keep drawing down the increase in value of the property and investing that separately. Which nobody does because of the impact on the mortgage rate.
I agree, there's no free money, but I'm not convinced renting and buying are generally equal propositions.
First to answer the question - my first flat was purchased with a 10% deposit, and I would imagine that's fairly typical for a first time buyer unless inheritance is involved. I made money on it when I moved, but if I was in negative equity I simply wouldn't have moved...
Second is the question of whether it's going to make or lose money, and for this I'd say the question is largely irrelevant unless you have a pressing need to sell up at some point, and you're underwater at that moment in time.
If your mortgage payments are broadly the same as rental payments would be, then who cares if the property increases or decreases in value? You still need to pay £X in order to have a roof over your head. The only difference is, after a set term with a mortgage you'll own the place and won't need to pay any more rent. You're also protected (more or less) against inflationary increases in rent - inflation of rent implies you're getting a better LTV when you remortgage as property prices will have increased due to demand.
Basically, think of having a mortgage as renting from the bank rather than a landlord, and you'll be fine. For sure, moving is a more involved process than giving a month's notice, but otherwise it's really not that dissimilar.
Second is the question of whether it's going to make or lose money, and for this I'd say the question is largely irrelevant unless you have a pressing need to sell up at some point, and you're underwater at that moment in time.
If your mortgage payments are broadly the same as rental payments would be, then who cares if the property increases or decreases in value? You still need to pay £X in order to have a roof over your head. The only difference is, after a set term with a mortgage you'll own the place and won't need to pay any more rent. You're also protected (more or less) against inflationary increases in rent - inflation of rent implies you're getting a better LTV when you remortgage as property prices will have increased due to demand.
Basically, think of having a mortgage as renting from the bank rather than a landlord, and you'll be fine. For sure, moving is a more involved process than giving a month's notice, but otherwise it's really not that dissimilar.
If you can borrow at sub 1.5% you should borrow as much as you can comfortably afford, and buy something wisely that you also enjoy loving in. There is no point in being asset light and savings rich in this current climate, unless you take significant risk with investment of said savings you will loose.
Hard assets will rise.
Hard assets will rise.
Mine is 90% LTV, on a £180k flat in the south east I bought this time last year & which I will be paying off till retirement. I could have borrowed a shade under twice as much against the salary rules but couldn't afford the additional repayments - the morale of this story is don't get divorced...
Rightly or wrongly I took a repayment mortgage. Maybe I could have found an interest only mortgage and serviced the loan like many of my friend and collegues, which would have meant I could have got into a bigger place, but I had no vehicle to pay off the outstanding capital at the end of the term except sell it and down size / down location to something I can afford with the equity coming from house price inflation. I have no desire to spend my retirement years in Redcar, S
horpe or Port Talbot thank you.
I seriously don't know all those on I/O mortgages will pay off the capital part of the mortgage when it falls due, and I think this is where the house price correction will start from, if it ever comes.
Rightly or wrongly I took a repayment mortgage. Maybe I could have found an interest only mortgage and serviced the loan like many of my friend and collegues, which would have meant I could have got into a bigger place, but I had no vehicle to pay off the outstanding capital at the end of the term except sell it and down size / down location to something I can afford with the equity coming from house price inflation. I have no desire to spend my retirement years in Redcar, S
horpe or Port Talbot thank you.I seriously don't know all those on I/O mortgages will pay off the capital part of the mortgage when it falls due, and I think this is where the house price correction will start from, if it ever comes.
TartanPaint said:
But you wouldn't get the same benefit.
If you have £50k deposit, and you invest that in a REIT or some other levered property investment, you will get approximately a rate of return similar to the increase in the value of property over time on your £50k.
You are right that they aren't equal and I am a mortgage holder so I am not trying to preach rent vs. buy OR claim they are EXACTLY equal.If you have £50k deposit, and you invest that in a REIT or some other levered property investment, you will get approximately a rate of return similar to the increase in the value of property over time on your £50k.
They are just far more equal than most people seem to think.
For the last time, I am just saying that the argument "I get a house in 25 years but nothing when renting" or "rent is throwing money away" are simply financially wrong.
As for the comment above you have failed to apply the crucial point: LEVERAGE.
Firstly, most REITs are levered in themselves so will rise/fall FASTER than house price inflation.
And furthermore, if you wanted to mirror the exact property exposure you get with 75% LTV and a £50k deposit you would need to work out something genuinely levered, like a CALL OPTION on a REIT, say.
Such that your £50k would have 4x leverage to give you £200k's worth of exposure to property price fluctuations.
Collectingbrass said:
Mine is 90% LTV, on a £180k flat in the south east I bought this time last year & which I will be paying off till retirement. I could have borrowed a shade under twice as much against the salary rules but couldn't afford the additional repayments - the morale of this story is don't get divorced...
Rightly or wrongly I took a repayment mortgage. Maybe I could have found an interest only mortgage and serviced the loan like many of my friend and collegues, which would have meant I could have got into a bigger place, but I had no vehicle to pay off the outstanding capital at the end of the term except sell it and down size / down location to something I can afford with the equity coming from house price inflation. I have no desire to spend my retirement years in Redcar, Shorpe or Port Talbot thank you.
I seriously don't know all those on I/O mortgages will pay off the capital part of the mortgage when it falls due, and I think this is where the house price correction will start from, if it ever comes.
So you borrowed 2.5x salary? But you could not afford more? But you'll be paying it off for life? I'm a bit lost? Rightly or wrongly I took a repayment mortgage. Maybe I could have found an interest only mortgage and serviced the loan like many of my friend and collegues, which would have meant I could have got into a bigger place, but I had no vehicle to pay off the outstanding capital at the end of the term except sell it and down size / down location to something I can afford with the equity coming from house price inflation. I have no desire to spend my retirement years in Redcar, S
horpe or Port Talbot thank you.I seriously don't know all those on I/O mortgages will pay off the capital part of the mortgage when it falls due, and I think this is where the house price correction will start from, if it ever comes.
5x salary would still leave most people with a fair chunk to live on each month unless they had a truly horrific rate?
I struggled with taking the leap of faith into getting a mortgage vs the perceived "freedom" of renting and being debt free.
However, then i realised - i still have to work to pay the rent. I cannot just stop paying it, unless i want to go live under a bridge.
Therefore i realised that there is actually little difference in terms of freedom. You have to pay for housing one way or the other. At least with a mortgage the payments stop at some point. Plus rents will likely go up and your payments for mortgage go down as you pay more of it off. Also - when i visualise retiring, i want a paid off house, not to rent. Only one way to get there and that is to take the plunge.
Another things that helped get over the fear is looking at the transaction like a balance sheet. Rather than being afraid of say £200k debt, i'm thinking i'm taking on a £200k debt on my balance sheet, but also adding an asset worth £250k which the debt is secured against. I can always pay off this debt by selling the asset and return to zero. May seem obvious, but reframing it like this helped me remove some fear! hth.
However, then i realised - i still have to work to pay the rent. I cannot just stop paying it, unless i want to go live under a bridge.
Therefore i realised that there is actually little difference in terms of freedom. You have to pay for housing one way or the other. At least with a mortgage the payments stop at some point. Plus rents will likely go up and your payments for mortgage go down as you pay more of it off. Also - when i visualise retiring, i want a paid off house, not to rent. Only one way to get there and that is to take the plunge.
Another things that helped get over the fear is looking at the transaction like a balance sheet. Rather than being afraid of say £200k debt, i'm thinking i'm taking on a £200k debt on my balance sheet, but also adding an asset worth £250k which the debt is secured against. I can always pay off this debt by selling the asset and return to zero. May seem obvious, but reframing it like this helped me remove some fear! hth.
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