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Is Taking a Mortgage the WORST Decision Ever??
Rank: Elder Joined: 7/22/2009 Posts: 7,455
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I know a number of people believe taking a mortgage is good decision because it enables you to own a house using money you 'don't have' and pay for it slowly. I beg to differ in the strongest terms. Let's talk numbers. If you take a mortgage for 10 million at a rate of 15% repayable in 20 years, you will be paying Kshs. 131,678.96/= every month:- =PMT(15%/12,20*12,10000000,0,0)Now, in 20 years, you will have paid 131,678.96 * 12 * 20 = Kshs. 31,602,949.98Will the house be worth 31 million in 20 years? Maybe, Maybe not. But that is not the basis of my argument! Now, assuming you decided to be investing the money [while paying rent] what would you end up with? Let's assume you use the 31k to pay rent [you cantop it up if you want] and then be investing the 100k monthly at an annual return of 25% [which many wazuans can do with their eyes closed!] your investment will be worth a whooping Kshs. 671,911,370.91/= in 20 years!!! =FV(25%/12,20*12,-100000,0,0)Which guy would you rather be??? Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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Explanation of the [Microsoft Excel] functions used. PMT - Calculates the payment for a loan based on constant payments and a constant interest rate. Syntax=PMT(rate,nper,pv,fv,type) Rate - is the interest rate for the loan. . [Divide by 12 if payments are monthly] Nper - is the total number of payments for the loan. Pv - is the present value, or the total amount that a series of future payments is worth now; also known as the principal. Fv - is the future value, or a cash balance you want to attain after the last payment is made. If fv is omitted, it is assumed to be 0 (zero), that is, the future value of a loan is 0. Type - is the number 0 (zero) or 1 and indicates when payments are due.
FV – Used to calculate future value based fixed periodic payments Syntax:=FV(rate,nper,pmt,pv,type) Rate - is the interest rate per period. [Divide by 12 if payments are monthly] Nper - is the total number of payment periods in an annuity. Pmt - is the payment made each period; it cannot change over the life of the annuity. Typically, pmt contains principal and interest but no other fees or taxes. Pv - is the present value, or the lump-sum amount that a series of future payments is worth right now. Type - is the number 0 or 1 and indicates when payments are due. If type is omitted, it is assumed to be 0. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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Suggestion: Make changes to the values in the FV function depending on expected % returns, period and payments and see how much your investment will be worth. For example if you can manage 30% annual returns, your investment would be worth Kshs. 1,494,951,859.95. If you can manage 35% annual returns your investment would be worth Kshs. 3,398,177,149.32Yes!!! Kshs. 1.5 Billion and Kshs. 3.4 Billion respectively! With a B. He he he. Or you could be the proud owner of a 20 year old house. Choose!!! Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Member Joined: 1/22/2007 Posts: 336
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@maich, I am pleased with the way you tell your story using figures.Someone told me you can always confuse and convince anyone using numbers.thanks for this information,but could you please in good faith give an example of what investment of such figure yield such a return.l would not mind doing it myself.Thanks and be blessed. Advice is like snow.The softer it lands the harder is sticks.
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Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
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Great piieces @blackman. But how many people make 25pc per year on investments?
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Rank: Elder Joined: 9/23/2010 Posts: 2,220 Location: Sundowner,Amboseli
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Lolest! wrote:Great piieces @blackman. But how many people make 25pc per year on investments? If you cant do 25%, work with a lower percentage, you will still be better off than sinking in debt(Mortgage)or better still,tupatie pesa tukutengenezee hapa NSE. #GoForthAndMultiplyYourMoney  @SufficientlyP
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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Forget the numbers, when I got my mortgage it was hell! 2 years I felt so squeezed financially, then I got used to the pain. In the meantime, my pal who refused to buy when I bought started paying more rent than my repayments. LOOOOOOLLLL Best move I ever made in life, wish I had done it earlier! Business opportunities are like buses,there's always another one coming
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Rank: Elder Joined: 9/23/2010 Posts: 2,220 Location: Sundowner,Amboseli
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Avoid debt(slavery) at all costs.You will be working for the KCBs and Equitys of this world. Better to work with the little you have.Then you will have PEACE-THE ULTIMATE GOAL! @SufficientlyP
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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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vin wrote:@maich,
I am pleased with the way you tell your story using figures.Someone told me you can always confuse and convince anyone using numbers.thanks for this information,but could you please in good faith give an example of what investment of such figure yield such a return.l would not mind doing it myself.Thanks and be blessed. Lolest! wrote:Great piieces @blackman. But how many people make 25pc per year on investments? @vin and @  - You can easily get such returns in the stock market. A number of wazuans [starting with @stocksmaster - a wazuan I greatly respect], post this information free of charge in this forum See this thread started by @stocksmaster in January this year. Diamond Trust BankBuying Price: 192/= Current Price: 236/= % gain: 23%Housing FinanceBuying Price: 31.25/= Current Price: 37.25/= % gain: 19.2%TPS Serena:Buying Price: 46/= Current Price: 41/= % gain: - 10%And that is in 4 months!!! a good number disagreed with TPS Serena, so you would have probably avoided it. May be. In 2010, the fellow made a return of 109.7%!!! And he posted the information real time - When buying and when selling. Sio pang'ang'a! Here is the evidence: Starting the thread - Jan 1 2010Year End Report - post#367Links for performance of his picks for 2011, 2012 and 2013 can be found hereNever count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 10/9/2008 Posts: 5,389
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Saw this advert on yesterday's Washington Post. Are these mortgage rates real or there are numerous hidden charges? Cheapest in Kenya is currently about 14%. 
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Rank: Member Joined: 5/8/2013 Posts: 386 Location: Nyali mombasa
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MaichBlack wrote:I know a number of people believe taking a mortgage is good decision because it enables you to own a house using money you 'don't have' and pay for it slowly. I beg to differ in the strongest terms.
Let's talk numbers.
If you take a mortgage for 10 million at a rate of 15% repayable in 20 years, you will be paying Kshs. 131,678.96/= every month:-
=PMT(15%/12,20*12,10000000,0,0)
Now, in 20 years, you will have paid
131,678.96 * 12 * 20 = Kshs. 31,602,949.98
Will the house be worth 31 million in 20 years? Maybe, Maybe not. But that is not the basis of my argument!
Now, assuming you decided to be investing the money [while paying rent] what would you end up with?
Let's assume you use the 31k to pay rent [you cantop it up if you want] and then be investing the 100k monthly at an annual return of 25% [which many wazuans can do with their eyes closed!] your investment will be worth a whooping Kshs. 671,911,370.91/= in 20 years!!!
=FV(25%/12,20*12,-100000,0,0)
Which guy would you rather be???
25% wel that caught my eye, any threads on how to achieve 25% or even more than 12% am currently getting?
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Rank: Member Joined: 12/2/2011 Posts: 176
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MaichBlack wrote:I know a number of people believe taking a mortgage is good decision because it enables you to own a house using money you 'don't have' and pay for it slowly. I beg to differ in the strongest terms.
Let's talk numbers.
If you take a mortgage for 10 million at a rate of 15% repayable in 20 years, you will be paying Kshs. 131,678.96/= every month:-
=PMT(15%/12,20*12,10000000,0,0)
Now, in 20 years, you will have paid
131,678.96 * 12 * 20 = Kshs. 31,602,949.98
Will the house be worth 31 million in 20 years? Maybe, Maybe not. But that is not the basis of my argument!
Now, assuming you decided to be investing the money [while paying rent] what would you end up with?
Let's assume you use the 31k to pay rent [you cantop it up if you want] and then be investing the 100k monthly at an annual return of 25% [which many wazuans can do with their eyes closed!] your investment will be worth a whooping Kshs. 671,911,370.91/= in 20 years!!!
=FV(25%/12,20*12,-100000,0,0)
Which guy would you rather be???
thankyou for this. there is someone who really pressures me on taking a mortgage and i flatly tell him no, at least not in kenya coz of the ridiculously high rates. its only the high end houses where the rent collected can pay off a mortgage. i'd rather invest and build up money for building a house in the future.
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Rank: Elder Joined: 7/23/2008 Posts: 3,017
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MaichBlack wrote:I know a number of people believe taking a mortgage is good decision because it enables you to own a house using money you 'don't have' and pay for it slowly. I beg to differ in the strongest terms.
Let's talk numbers.
If you take a mortgage for 10 million at a rate of 15% repayable in 20 years, you will be paying Kshs. 131,678.96/= every month:-
=PMT(15%/12,20*12,10000000,0,0)
Now, in 20 years, you will have paid
131,678.96 * 12 * 20 = Kshs. 31,602,949.98
Will the house be worth 31 million in 20 years? Maybe, Maybe not. But that is not the basis of my argument!
Now, assuming you decided to be investing the money [while paying rent] what would you end up with?
Let's assume you use the 31k to pay rent [you cantop it up if you want] and then be investing the 100k monthly at an annual return of 25% [which many wazuans can do with their eyes closed!] your investment will be worth a whooping Kshs. 671,911,370.91/= in 20 years!!!
=FV(25%/12,20*12,-100000,0,0)
Which guy would you rather be???
@Maich, your numbers are right, but its never that easy, based on the same arguement, a pension plan where one contributes 5K and the employer 5k should see employee retire with Sh 68 million at the end of 20 years but this never happens. even when the rate of return is reduced to 12% per annum, the amount to take home after 20 years should be approx 10 million, but which people get this. No my friend, investments are very complicated and more often than not the rate of return of taking a mortgage or investing in a financial instrument of any nature is the same. using NSE to argue is not going to fly, check the 20 share index, its currently below its all time peak, meaning on an overall basis, there has been no growth in wealth, yes people have made money but thats at the expense of others "The purpose of bureaucracy is to compensate for incompetence and lack of discipline." James Collins
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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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@vin and @Lolest - See post# 318 in this thread. I got into into Co-op at 16/= levels. I am now approximately 40% and it's not even a year yet!I also got into CFC in the 40's level. Now that is currently worth 135 + 22.75 (CFC Stanbic + CFC Insurance Holdings) = 157.75/= This is approximately 250% returns to date.. Annualized, this would be in excess of 50% returns annually!!!Never mind I added some more at 33/= during the rights issue. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Veteran Joined: 11/2/2006 Posts: 1,206 Location: Nairobi
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Obi 1 Kanobi wrote:MaichBlack wrote:I know a number of people believe taking a mortgage is good decision because it enables you to own a house using money you 'don't have' and pay for it slowly. I beg to differ in the strongest terms.
Let's talk numbers.
If you take a mortgage for 10 million at a rate of 15% repayable in 20 years, you will be paying Kshs. 131,678.96/= every month:-
=PMT(15%/12,20*12,10000000,0,0)
Now, in 20 years, you will have paid
131,678.96 * 12 * 20 = Kshs. 31,602,949.98
Will the house be worth 31 million in 20 years? Maybe, Maybe not. But that is not the basis of my argument!
Now, assuming you decided to be investing the money [while paying rent] what would you end up with?
Let's assume you use the 31k to pay rent [you cantop it up if you want] and then be investing the 100k monthly at an annual return of 25% [which many wazuans can do with their eyes closed!] your investment will be worth a whooping Kshs. 671,911,370.91/= in 20 years!!!
=FV(25%/12,20*12,-100000,0,0)
Which guy would you rather be???
@Maich, your numbers are right, but its never that easy, based on the same arguement, a pension plan where one contributes 5K and the employer 5k should see employee retire with Sh 68 million at the end of 20 years but this never happens. even when the rate of return is reduced to 12% per annum, the amount to take home after 20 years should be approx 10 million, but which people get this. No my friend, investments are very complicated and more often than not the rate of return of taking a mortgage or investing in a financial instrument of any nature is the same. using NSE to argue is not going to fly, check the 20 share index, its currently below its all time peak, meaning on an overall basis, there has been no growth in wealth, yes people have made money but thats at the expense of others 131K*12months=1.57M/Year..... If you bought land worth 1.57M every year,I think in 20yrs you would have land worth over 30M. In fact, midway, you could take a loan to buy more using titles you already have as collateral. Formally employed people often live their employers' dream & forget about their own.
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Rank: Elder Joined: 7/23/2008 Posts: 3,017
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bird_man wrote:Obi 1 Kanobi wrote:MaichBlack wrote:I know a number of people believe taking a mortgage is good decision because it enables you to own a house using money you 'don't have' and pay for it slowly. I beg to differ in the strongest terms.
Let's talk numbers.
If you take a mortgage for 10 million at a rate of 15% repayable in 20 years, you will be paying Kshs. 131,678.96/= every month:-
=PMT(15%/12,20*12,10000000,0,0)
Now, in 20 years, you will have paid
131,678.96 * 12 * 20 = Kshs. 31,602,949.98
Will the house be worth 31 million in 20 years? Maybe, Maybe not. But that is not the basis of my argument!
Now, assuming you decided to be investing the money [while paying rent] what would you end up with?
Let's assume you use the 31k to pay rent [you cantop it up if you want] and then be investing the 100k monthly at an annual return of 25% [which many wazuans can do with their eyes closed!] your investment will be worth a whooping Kshs. 671,911,370.91/= in 20 years!!!
=FV(25%/12,20*12,-100000,0,0)
Which guy would you rather be???
@Maich, your numbers are right, but its never that easy, based on the same arguement, a pension plan where one contributes 5K and the employer 5k should see employee retire with Sh 68 million at the end of 20 years but this never happens. even when the rate of return is reduced to 12% per annum, the amount to take home after 20 years should be approx 10 million, but which people get this. No my friend, investments are very complicated and more often than not the rate of return of taking a mortgage or investing in a financial instrument of any nature is the same. using NSE to argue is not going to fly, check the 20 share index, its currently below its all time peak, meaning on an overall basis, there has been no growth in wealth, yes people have made money but thats at the expense of others 131K*12months=1.57M/Year..... If you bought land worth 1.57M every year,I think in 20yrs you would have land worth over 30M. In fact, midway, you could take a loan to buy more using titles you already have as collateral. @Birdman, totally agree, however you must also factor in the earnings from the property, how much rent do you earn from the mortgage property, or how much rent do you pay by not taking a mortgage for a similar property. remove that before doing the maths. "The purpose of bureaucracy is to compensate for incompetence and lack of discipline." James Collins
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Rank: Elder Joined: 12/7/2012 Posts: 11,908
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Balance both. Make money and then buy an asset 'house/land' and re-cycle that over and over. It works wonders at least for me! Over a period of 16 years now! In the business world, everyone is paid in two coins - cash and experience. Take the experience first; the cash will come later - H Geneen
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Rank: Elder Joined: 6/2/2011 Posts: 4,818 Location: -1.2107, 36.8831
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Mortgaging will only make sense if rates are below 6%! And i mean below! Guys who got an excellent deal are those of the Ngara Housing Project. Was it 4%? Receive with simplicity everything that happens to you.” ― Rashi
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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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jaggernaut wrote:Saw this advert on yesterday's Washington Post. Are these mortgage rates real or there are numerous hidden charges? Cheapest in Kenya is currently about 14%. Yeah! Mortgages in the US are that low. At one time they were below 4% and high net worth individuals were getting mortgage at rate of as low as 1%!!! This is basically FREE MONEY because it is lower than the inflation rate. Even if you have money, you'd rather invest your money elsewhere and take the free money!!! Kenyan rates are the ones that don't make any economic sense whatsoever!!! As @dunkang correctly states, rates of 4% - 6% would make economic sense. Zuckerberg’s Loan Gives New Meaning to the 1%Why does a billionaire need a loan???Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 7/23/2008 Posts: 3,017
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dunkang wrote:Mortgaging will only make sense if rates are below 6%! And i mean below!
Guys who got an excellent deal are those of the Ngara Housing Project. Was it 4%? If you get 10% and below, take. accelearte payments and you will be laughing very loudly 3 years after initial payment. If you are unlucky to be paying any mortgage at a rate above 14%, you will really hate the damn house. So in short, mortgages are as good an investment as any but at current market rates they MUST be avoided. "The purpose of bureaucracy is to compensate for incompetence and lack of discipline." James Collins
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