MaichBlack wrote:JKN wrote:Mr. X earns the same as Mr. Y and living in a rented apartment paying KSh. 45,000 pm. In 20 years, he will have thrown away more than KSh. 12m (in rent payments factoring annual increments).
Mr. Y has taken a 20yrs mortgage of KSh. 6m @11% interest rate, with a monthly repayment of 62,000. His monthly mortgage repayment is 17,000 more than Mr. X’s rent; implying after 20yrs, he will have spent 4.1m more than Mr. X.
20 years later, Mr. Y has a house he bought at 6m using the banks money and probably worth 20m by then, (his capital gain more than his friends spend on rent), and having spent only 4.1m more than Mr. X, while his colleague owns nothing after spending more than 10m.
Who is the wise investor here? Do the calculations and plse don't put your Maths teacher to shame. Mortgage is not the wort decision ever. You use other people’s money to cut on rental losses and the capital gain shall all be yours. Select your location wisely to maximize the returns.
Nice try at trying to confuse Kenyans. Does a house that cost 6 million attract Kshs. 45,000/= rent??? Of course not!!! Redo the calculation placing Mr. X in the same neighbourhood Mr Y bought his house thereby significantly reducing his rent and then tell us which bank is giving mortgages at 11% - Not OFFERS where the fine print says the interest rate can change any time (After enough people have taken the mortgage).
One last thing, is person X putting the difference under a mattress???
A mortgage, like all interventions has both good and ugly parts to it. It all depends with your objective when engaging. Common objectives are:
1. Investment - dependent on location, type and economic environment. My assumed rate of return for an apartment in Nairobi is 10-15% annual appreciation, on top of 2-6% rent on the base price.
While there are more lucrative ventures, risk tends to be directly proportional to the rate of return (rule of thumb)
2. Security / Peace of mind - is not quantifiable financially but is that x factor that sometimes gives ooomph to life.
3. Utility / Cost savings - as a rule of thumb, mortgage will remain constant while rent will increase (5% compounded annually) and will catch up with mortgage repayment amounts. So as an expense, one can either work towards eliminating it - though it may mean starting with initial higher "expense" payments
4. Feasibility: generally, what we desire we may not afford immediately, but we can work towards. A mortgage may open this kind of opportunity.
Like all things, there's a flip side:
1. Golden handcuffs: bogged down, often for prolonged period with repayments. Can hinder growth, diversification both financially and socially
2. Risk of default : due to death, disability or inability
3. Opportunity cost: there may be other avenues with greater returns
Some of the downsides can be mitigated through measures like insurance etc
My view is this boils down to an individual decision based on preference and realities (financial, social, etc). So dont take any of the comments and opinions as Gospel without weighing pros and cons