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We've Decided To Buy A House.


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#16 worried1

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Posted 03 May 2012 - 03:17 PM

Well As any easy way of working it out

Taking the maximum cash amount allowed for a couple 11,280 to invest in an ISA and use average saving interest rates for the last 21 years Taken from here

After 21 years you would have 441,912.59 which is 60k a bit off your 500k but for Zero risk


It is interesting to see how quickly that can mount up with zero risk cash accounts, but 11,280 per year is almost 250k and I guess Son of Taeper will not have had to invest that much in the capital repayment element of his mortgage over the years. 1k per month + interest would have been a hell of a mortgage in 1990!

#17 Rozza

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Posted 03 May 2012 - 03:35 PM

Totally agree, doubt many mortgages were anywhere near that figure in 1990

Also as you may have spotted the numbers are acutally larger than i originally listed due to a copy paste error of mine when working it out in excel

But yes it is interesting, in fact if people sat down and worked it all out for themselves more people would probably save more!!

Also interestingly, I took Son of Taepars figures and worked backwards, which causes the following

Current house 550,000.00
Take off 25% leaves 412,500.00
Take off 30% leaves 288,750.00
Take off 45% leaves 158,812.50
Take off 75% leaves 39,703.13

Putting the mortgage payment at around 200 a month... I would LOVE that monthly rent/mortgage payment!! :P

Edited by Rozza, 03 May 2012 - 03:51 PM.


#18 Son of Taeper

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Posted 03 May 2012 - 05:25 PM

True, it is effectively dead money, that cannot be invested without paying interest, but you now have 1,500 spare each month as you no longer have the mortgage, where the guy paying rent only has 500 spare each month. Multiply that by another 20 years and the home owner is sitting very well indeed.

To be fair youve only been a member for six years so have probably missed Bruces 4 billion posts highlighting this physical financial reality


Son of Taeper Joined:18-July 06
Bruce Banner Joined:15-December 07
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:P

Edited by Son of Taeper, 03 May 2012 - 05:33 PM.

The views expressed in my posts are my own based upon what I read on other information supplied by other HPC members.
These should not be used a a definitive answer to any posts I attempt to answer.

#19 Son of Taeper

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Posted 03 May 2012 - 05:56 PM

It all depends on how much the interest on the mortgage is compared to renting an equivalent place, and how much you expect house prices to increase compared to other investments.

Say I could rent a flat for 1,000 per month or buy it for 1,500 per month (1k interest, 500 repayment). If I rent, I'd pay out 300k in dead money to a landlord every month, if I buy I'd pay out the same in dead money to a bank, but I'd also 'invest' 150k in buying the flat.

If I rented and invested that 150k over the period, I could actually end up with a sum worth more than the flat would have been worth, or at the very least use the money to pay the rent for the next few years.

Of course, if interest rates stay this low in the long term buying becomes more attractive.

Not so as you are only investing 500 the first month, not a lump sum of 150,000

Worse case scenario on both sides of the argument, are that both the house and the alternative investment are worth zero at the end of a 25 year term. The property investor still has a roof over his head though.
The views expressed in my posts are my own based upon what I read on other information supplied by other HPC members.
These should not be used a a definitive answer to any posts I attempt to answer.

#20 Georgia O'Keeffe

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Posted 03 May 2012 - 06:09 PM

on second thoughts its not worth the fonts

Edited by Georgia O'Keeffe, 03 May 2012 - 06:37 PM.


#21 Son of Taeper

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Posted 03 May 2012 - 07:00 PM

It is interesting to see how quickly that can mount up with zero risk cash accounts, but 11,280 per year is almost 250k and I guess Son of Taeper will not have had to invest that much in the capital repayment element of his mortgage over the years. 1k per month + interest would have been a hell of a mortgage in 1990!

The ISA was not around when I got my first mortgage but we did have Miras
Miras ended the year after Isa was launched.
To be absolutely fair, we would have to compare joint Miras with joint Isa which cannot be done as joint Miras ended in 1988.
Look at that spike of people rushing to buy before the deadline -
http://www.housepric...tage-change.php :o

We did have some hefty interest rates for a while though which would have benefited a saver.

I'm trying to paint a fair picture here of how it was at a particular period, not saying it would work for the next 20 -25 years as no-one can answer that quest with certainty.
The views expressed in my posts are my own based upon what I read on other information supplied by other HPC members.
These should not be used a a definitive answer to any posts I attempt to answer.

#22 Si1

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Posted 03 May 2012 - 07:02 PM

on second thoughts its not worth the fonts


+1

#23 Bruce Banner

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Posted 03 May 2012 - 09:20 PM

You now own the house after saving/paying the mortgage (say 500K ), you now have 500K tied up in the asset that cannot be alternatively invested, this is also dead money from an alternative investment perspective, it is stuck in the house with the yield being you living there the imputed rent. If you want to release that Value to invest elsewhere you will have pay interest or rent

Identically the renter has at the same time saved that 500K which can be invested elsewhere that may or may not create an income/yield that more than covers the rent.

All investments have opportunity cost, the inability of you being able to recognise this is simply sloppy thinking and not understanding the mechanism, Of course this ignores the vagaries of taxation which at any time can and will change to favour one form of investment over another but the fundamental is renting is no more or less dead money than owning all costs being equal however at any time the investment performance of one will return greater than the other but this is irrelevant to your lack of understanding of opportunity cost and the opportunity you have foregone having dead alternative investment capital tied up in the property if it underperforms other assets.

Which has been better in the past is irrelevant, which is better right now and in the future wont be known until the future has happened.

To be fair youve only been a member for six years so have probably missed Bruces 4 billion posts highlighting this physical financial reality


Opportunity cost makes a nonsense of that well worn estate agent mantra "renting is dead money". But, there are none so blind as those who will not see.
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Lest there be any doubt.

No I believe prices will fall and am astounded that a so called Conservative led government could act in such a stupid way. As you can see from today, there are 2,000 HtB applicants and it has been on MSM none stop all day and they make up about 3.5% of a typical months mortgages.

BTL is a good potential way to bankruptcy and yes sometimes I make points to hopefully make people think.


#24 Bruce Banner

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Posted 04 May 2012 - 06:33 AM

But renting is dead money.
There is no way it can ever be anything else.
With property, sure, the value could go up or down, but even if it went down to 0:00 at the end of your 25 year ball and chain, you should own it outright. That means you get the next 25 - 50 years of your life living for free.
The renter on the other hand will spend the next 25 - 50 years continuing to fork out. Not too bad if that's the way they want to live, but when they retire, they still need to find 10, 000 a year when they have no income.
What you seem to be saying here is that you will never buy a house.
I'd like to see some financial genius from you that proves that is a wise move.



Poppycock!

I am retired and rent out of choice. The interest I receive on the money I would have to draw out of the bank to buy the house I'm renting more than pays the rent and I don't have my money tied up in an illiquid, depreciating, asset.
.



----------------------------------------------------------------------------------------------------------
Lest there be any doubt.

No I believe prices will fall and am astounded that a so called Conservative led government could act in such a stupid way. As you can see from today, there are 2,000 HtB applicants and it has been on MSM none stop all day and they make up about 3.5% of a typical months mortgages.

BTL is a good potential way to bankruptcy and yes sometimes I make points to hopefully make people think.





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