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Is Taking a Mortgage the WORST Decision Ever??
Rank: Member Joined: 4/26/2011 Posts: 759
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I am neither an expert in NSE nor Kenya real estate but there are a few wrong assumptions people are making on this thread. To correct that, here is my knowledge:
1) Land do not appreciate indefinately neither is the property prices.
2) A mortgage doesn't give you ownership right to the property, the bank still hold the call opton, as a matter of fact, the bank is the investor with a floor, as the holder of the mortgage you're betting on the upside without any hedge.
3) Mortgage is never a good investment.
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Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi
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I agree with @Maich. A 20yr mortgage at 15% is slavery. Better buy cash OR buy plot and build with Sacco loan. A 12% Sacco loan on reducing balance is 7.5% straight line. Life is short. Live passionately.
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Rank: Member Joined: 1/13/2014 Posts: 386 Location: Denmark
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deadpoet wrote:knight026 wrote:kiwaru wrote: I met a guy who told me that he bought half an acre in Kile at 1m in 1981. Recently it was valued at 100m #dothemath Do the Maths. Adjusted for inflation? That 1m at that time is probably worth the same as 100m now. true.. time value of money Seeing is believing
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Rank: Chief Joined: 5/9/2007 Posts: 13,095
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@Maich n all, nice educative thread. Question, what advise would you give a guy with an access to 4million loan at an interest rate of 6‰? I now guess taking a mortgage at the same rate would be kinda dumb, just in case one shifts jobs as McReggae has explained earlier.
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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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Obi 1 Kanobi wrote:knight026 wrote:Big names,not all rosy, and the assumption that one will never make a mistake is a fallacy.
KQ-11.25(1996)
Kengen-11.90(2006) Now we are getting somewhere with regards to this mythical 25% return over 20 years. In addition to all the other links i have provided, see post# 937 in this threadNever 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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washiku wrote:@Maich n all, nice educative thread. Question, what advise would you give a guy with an access to 4million loan at an interest rate of 6‰? I now guess taking a mortgage at the same rate would be kinda dumb, just in case one shifts jobs as McReggae has explained earlier. 6% is a good deal in my opinion. If you have the opportunity, take the money. Assuming a repayment period of 20 years, you will be paying Kshs. 28,657.24/= every month. =PMT(6%/12,20*12,4000000,0,0) That is just like paying rent but you end up owning the house!!! Even if reduce the period to 15 years, you still end up paying Kshs. 33,754.00/= per month. If you have a plot, with 4 million you can build yourself a nice cozy house and simply transfer you rent payments to loan repayment with no extra hustle! NB: The main problem is current interest rates. At 6% [fixed I hope] you are getting a very sweet deal! Take it. 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: 7/11/2012 Posts: 5,222
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MaichBlack wrote:washiku wrote:@Maich n all, nice educative thread. Question, what advise would you give a guy with an access to 4million loan at an interest rate of 6‰? I now guess taking a mortgage at the same rate would be kinda dumb, just in case one shifts jobs as McReggae has explained earlier. 6% is a good deal in my opinion. If you have the opportunity, take the money. Assuming a repayment period of 20 years, you will be paying Kshs. 28,657.24/= every month. =PMT(6%/12,20*12,4000000,0,0) That is just like paying rent but you end up owning the house!!! Even if reduce the period to 15 years, you still end up paying Kshs. 33,754.00/= per month. If you have a plot, with 4 million you can build yourself a nice cozy house and simply transfer you rent payments to loan repayment with no extra hustle! NB: The main problem is current interest rates. At 6% [fixed I hope] you are getting a very sweet deal! Take it. Take the mortgage/land purchase etc loan. If it get to @Mcdoba's scenario (Where I think the guy in question was not very bright), sell the house, pay the loan, and you are lest with a sizable capital to do something, accomodation-wise.
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Rank: Elder Joined: 7/11/2012 Posts: 5,222
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mungaits wrote:Very informative discussions!
Just a thought, what if one was to accelerate repayment through lump sum payments and clear the mortgage in say 5yrs.
How does this affect the total amount paid?
Can we get real feedback from Wazuans with mortgages not "my friend" tales!
Asanteni Did that. Took mortgage because I had access to low interest loans. And I was very young. Paid my mortgage haraka haraka with proceeds from other ventures. There is something mentioned in this thread that you won't read often. Peace of mind. There are 2 'peace-of-mind's in contention here. The one of living in your own place, on one side, and the one of not worrying about changes in interest rates/how to sustain mortgage payments. Everyone is built differently. There is no one-size-fits-all. Someone might even argue that there is no assurance of tomorrow. Why delay gratification, when I could die without enjoying options available to me? In any case, if I expire my mortgage is bound to be paid up by insurance and my family is taken care of.
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Rank: Chief Joined: 5/9/2007 Posts: 13,095
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Okay then... Now, one more... Two options, at the same rate of interest, what is a better option between taking an unsecured loan and building a house vis a vis taking a mortgage for an already built house?
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Rank: Member Joined: 4/26/2011 Posts: 759
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Mukiri wrote:mungaits wrote:Very informative discussions!
Just a thought, what if one was to accelerate repayment through lump sum payments and clear the mortgage in say 5yrs.
How does this affect the total amount paid?
Can we get real feedback from Wazuans with mortgages not "my friend" tales!
Asanteni Did that. Took mortgage because I had access to low interest loans. And I was very young. Paid my mortgage haraka haraka with proceeds from other ventures. There is something mentioned in this thread that you won't read often. Peace of mind. There are 2 'peace-of-mind's in contention here. The one of living in your own place, on one side, and the one of not worrying about changes in interest rates/how to sustain mortgage payments. Everyone is built differently. There is no one-size-fits-all. Someone might even argue that there is no assurance of tomorrow. Why delay gratification, when I could die without enjoying options available to me? In any case, if I expire my mortgage is bound to be paid up by insurance and my family is taken care of. Morgage payments are structure such that large portion of you monthly payments in early live goes to paying interest; if you have a 20yr Mortgage at the 10th year mark you would have paid approx. 30% of the principle( Not 50%) and you'd have paid approx. 70% of your interest. This structure is meant to discourage people from accelarating their payments.
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Rank: Member Joined: 11/15/2010 Posts: 454 Location: Nairobi
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Sufficiently Philanga....thropic wrote: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! Does this advise against taking any kind of debt even for business expansion, buying an asset such as land or car. ....He who began a good work in you will carry it on to completion..
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Rank: Chief Joined: 5/9/2007 Posts: 13,095
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Rollout wrote:Mukiri wrote:mungaits wrote:Very informative discussions!
Just a thought, what if one was to accelerate repayment through lump sum payments and clear the mortgage in say 5yrs.
How does this affect the total amount paid?
Can we get real feedback from Wazuans with mortgages not "my friend" tales!
Asanteni Did that. Took mortgage because I had access to low interest loans. And I was very young. Paid my mortgage haraka haraka with proceeds from other ventures. There is something mentioned in this thread that you won't read often. Peace of mind. There are 2 'peace-of-mind's in contention here. The one of living in your own place, on one side, and the one of not worrying about changes in interest rates/how to sustain mortgage payments. Everyone is built differently. There is no one-size-fits-all. Someone might even argue that there is no assurance of tomorrow. Why delay gratification, when I could die without enjoying options available to me? In any case, if I expire my mortgage is bound to be paid up by insurance and my family is taken care of. Morgage payments are structure such that large portion of you monthly payments in early live goes to paying interest; if you have a 20yr Mortgage at the 10th year mark you would have paid approx. 30% of the principle( Not 50%) and you'd have paid approx. 70% of your interest. This structure is meant to discourage people from accelarating their payments. By the way this applies for most loans too, right?
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Rank: Member Joined: 1/15/2010 Posts: 625
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MaichBlack wrote:mv_ufanisi wrote:@Maichblack the assumption of 25% pa over 20 years is too optimistic. I'd move that much lower to say 12%.
Here's why: you can start with 1M and get 25% a year for two years and then on the third year the stock market goes down by 50%. The result would be that you're down to 0.78M on the third year despite two stellar years.
20 years is a long time to enjoy such amazing returns especially in Kenya where something crazy could happen anytime. Also after your portfolio becomes big enough, you start running into liquidity problems and NSE capacity issues. The idea here is that one knows what they are doing. As Amos Kimunya [crudely] put it, the stock market is not a fish market. It is not a place you come, dump you money then come for it after a couple of years. You need to know what you are buying and why. You also need to know when to sell if fundamentals or whatever else changes. Don't fall in love with a stock. Stock markets don't just go up and down for no reason. You need to understand this dynamics or stay out of the stock market. Take the period before the last elections for example. Many wazuans took their money from the stock market and took it elsewhere - money market, dollar accounts, other stock exchanges etc. The same was discussed here at length. The worst didn't materialize but such fellows had covered themselves was it to happen. Unfortunately no one can foresee the future (that's why those fake prophets I see on TV should be challenged to make stock predictions and make billions in stead of asking for money from listeners but I digress). Some things happen suddenly and by the time you're rushing to sell there are no buyers. You could be holding a stock that retreats by 10% everyday on super thin volumes such that you can't sell it. The risk is both specific to a stock and to the market as a whole e.g. if there's sudden war and everyone rushes to sell or if you find out that the company has been cooking its books etc. You need a lot of luck to average 25% compounded return over 20 years - Warren Buffett has almost done this for 30+ years but he's a very tiny fraction of the investing community.
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Rank: Elder Joined: 2/26/2012 Posts: 15,980
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washiku wrote:Okay then... Now, one more... Two options, at the same rate of interest, what is a better option between taking an unsecured loan and building a house vis a vis taking a mortgage for an already built house? What are the terms of the unsecured loans? Does the interest increase with time? If you take up an unsecured loan to build how sure are you that the amount you take up is "enough" to build your house to completion? While constructing/building are you paying rent elsewhere? I think what is contentious is what amount of loan you take up and how u will pay it down. So many variables to consider "There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
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Rank: Elder Joined: 7/11/2012 Posts: 5,222
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tinker wrote:Sufficiently Philanga....thropic wrote: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! Does this advise against taking any kind of debt even for business expansion, buying an asset such as land or car. Debt IS NOT slavery! Debt is how wealth can be fast tracked. Read about leveraging OPM (Other people's money). Important thing is to have a plan and good advisors/mentors. Asset should bring you money ie the land and car should be for biachara
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Rank: Elder Joined: 7/11/2012 Posts: 5,222
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washiku wrote:Rollout wrote:Mukiri wrote:mungaits wrote:Very informative discussions!
Just a thought, what if one was to accelerate repayment through lump sum payments and clear the mortgage in say 5yrs.
How does this affect the total amount paid?
Can we get real feedback from Wazuans with mortgages not "my friend" tales!
Asanteni Did that. Took mortgage because I had access to low interest loans. And I was very young. Paid my mortgage haraka haraka with proceeds from other ventures. There is something mentioned in this thread that you won't read often. Peace of mind. There are 2 'peace-of-mind's in contention here. The one of living in your own place, on one side, and the one of not worrying about changes in interest rates/how to sustain mortgage payments. Everyone is built differently. There is no one-size-fits-all. Someone might even argue that there is no assurance of tomorrow. Why delay gratification, when I could die without enjoying options available to me? In any case, if I expire my mortgage is bound to be paid up by insurance and my family is taken care of. Morgage payments are structure such that large portion of you monthly payments in early live goes to paying interest; if you have a 20yr Mortgage at the 10th year mark you would have paid approx. 30% of the principle( Not 50%) and you'd have paid approx. 70% of your interest. This structure is meant to discourage people from accelarating their payments. By the way this applies for most loans too, right? You can mitigate this by re-negotiating the mortgage/loan, whenever you come up with large payments. New (reduced) mortgage/loan.
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Rank: Elder Joined: 2/26/2012 Posts: 15,980
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githundi wrote: murchr wrote:chip cards vs bar codes cards  hr MaichBlack wrote: KenyanEconomist wrote: The value of the house is independent of how you financed it, mortgage or not. If we say that Real Estate property value will increase by 15% over time, then the value of the 10m house will be ~200m in 20 years:
=FV((15%/12),20*12,0,-10000000)
And since we know from your earlier calculation that the total mortgage payment will be ~31m, I will end up with ~170m of value at the end of the 20 years.
The value of a house [especially at current] cannot increase by 15% p.a. over a period of time. Land, yes if you get in early in a place that is just opening up. But not a 10m house! You need data to prove the 15% not "if we say...". We can say a lot of things! How much was the price of a house in Buruburu (for example) in the year 2000? How much is the same house going for now? Do the math. Kwani that house is on the air or water? Any land that has been developed ie with water and sewer line in place even if the hse on it is run down is worth more than land with no infrastructure in place(access to roads etc). I recommend you search for a thread by Gordon Gecko*sp here on wazua, this topic was discussed then have you seen the houses guys are buying at 10m+ Huko 5th floor. Divide the total land area by the number of units and see how much land you can lay claim to! buru? If you work in the "right places" where you can get mortgages at 5% eg GOK or Judiciary 3% go ahead and take them. What really matters is that you put down a decent down payment, and get a decent rate, while paying the mortgage enjoy tax cuts if anything happens the insurance will sort you & Family out. "There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
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Rank: Elder Joined: 12/7/2012 Posts: 11,908
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Mukiri wrote:mungaits wrote:Very informative discussions!
Just a thought, what if one was to accelerate repayment through lump sum payments and clear the mortgage in say 5yrs.
How does this affect the total amount paid?
Can we get real feedback from Wazuans with mortgages not "my friend" tales!
Asanteni Did that. Took mortgage because I had access to low interest loans. And I was very young. Paid my mortgage haraka haraka with proceeds from other ventures. There is something mentioned in this thread that you won't read often. Peace of mind. There are 2 'peace-of-mind's in contention here. The one of living in your own place, on one side, and the one of not worrying about changes in interest rates/how to sustain mortgage payments. Everyone is built differently. There is no one-size-fits-all. Someone might even argue that there is no assurance of tomorrow. Why delay gratification, when I could die without enjoying options available to me? In any case, if I expire my mortgage is bound to be paid up by insurance and my family is taken care of. Agreed! Do what is best for you! 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: New-farer Joined: 1/3/2014 Posts: 32
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Rollout wrote:I am neither an expert in NSE nor Kenya real estate but there are a few wrong assumptions people are making on this thread. To correct that, here is my knowledge:
1) Land do not appreciate indefinately neither is the property prices.
2) A mortgage doesn't give you ownership right to the property, the bank still hold the call opton, as a matter of fact, the bank is the investor with a floor, as the holder of the mortgage you're betting on the upside without any hedge.
3) Mortgage is never a good investment. The concept here is `cherry picking'. Otherwise, also stocks don't appreciate indefinately
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Rank: Member Joined: 2/5/2010 Posts: 273 Location: NBI
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