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Is Taking a Mortgage the WORST Decision Ever??
Rank: Veteran Joined: 7/8/2008 Posts: 947
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KulaRaha wrote: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! I always come back to this thread. From 2014 I am now on my second mortgage. Had I followed the theoretical numbers being thrown around here 25% pa return .... consistently .. I would still be looking and not on my way to clearing the second mortgage. The wazua panganga should always be balanced by action. 5 years later this debate is continuing and the 25% pa investors are still looking for the investment vehicle. Maybe they should try ESKAY investments?
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Rank: Veteran Joined: 7/8/2008 Posts: 947
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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???
So Maichblack have you found the 25% pa investment vehicle. I too want to join that train!
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Rank: Member Joined: 3/1/2019 Posts: 170 Location: Nairobi
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tony stark 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???
So Maichblack have you found the 25% pa investment vehicle. I too want to join that train! You cannot compare a 10M mortgage with a 31k rent. The 2 are very different houses delivering very different standards of living. It is like saying instead of paying a rent of 70k, pay a rent of 31k and save lots of money, of course, money will be saved but at an extra cost of sacrificing quality of life. Life is short, the reason our parents educated us is so that we can live a good life, paying 31k rent is not the epitome of a good life. I buy my real estate in cash but I totally support those who take mortgages at whatever rate as long as they work their ass off and pay extra principal every month which can put a serious dent on the total interest payable. If you can't manage the extra payments, don't take it yet
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Rank: Elder Joined: 12/4/2009 Posts: 10,684 Location: NAIROBI
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NewMoney wrote:tony stark 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???
So Maichblack have you found the 25% pa investment vehicle. I too want to join that train! You cannot compare a 10M mortgage with a 31k rent. The 2 are very different houses delivering very different standards of living. It is like saying instead of paying a rent of 70k, pay a rent of 31k and save lots of money, of course, money will be saved but at an extra cost of sacrificing quality of life. Life is short, the reason our parents educated us is so that we can live a good life, paying 31k rent is not the epitome of a good life. I buy my real estate in cash but I totally support those who take mortgages at whatever rate as long as they work their ass off and pay extra principal every month which can put a serious dent on the total interest payable. If you can't manage the extra payments, don't take it yet When you take a loan whether personal or mortgage the most important thing is how you manage your cashflow. On the contrary most people who don't take loans you find then tying their money in investments which don't bring any returns but lock their money e.g idle land Wealth is built through a relatively simple equation
Wealth=Income + Investments - Lifestyle
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Rank: New-farer Joined: 12/30/2018 Posts: 94
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If you or your parent didn't buy land in the 70s and 80s in urban areas, then I think its a bad idea to invest or buy a property in those areas. There are two fallacies here, that owning the 10M property will significantly improve your life stands and that you can find an investment that pays 25% return a year. In short, yes, it would be better to invest monthly the 131K. I know in Mombasa, apartments going for 10M can be rented at between 35-40K. That gives about 90K if working at the same numbers, with a current fixed deposit earning of 10% thats around 68M. In both scenarios, inflation hasnt been captured, so i believe Maich is right, but 25% figure is a bit unrealistic.
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Rank: Member Joined: 2/20/2007 Posts: 767
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The way I see it, it all depends on your time horizon. If the time horizon is only 20yrs then ofcourse mortgage comes out as a raw deal. If you expand it to 30yrs and only pay mortgage for the first 20yrs then invest the cash thereafter for 10yrs and compare the return from no mortgage while using realistic return on 10-13% , (a bit optimistic still), I think the conclusion will be waaay different. The point is, no one gets a mortgage for the sake of paying for 20yrs then sell the house. The whole idea of a mortgage is the envisioned eternity of no rent payments once the mortgage is done. That eternity can spread to even 30yrs post mortgage depending on how early you take the mortgage. Tafakari hayo. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Is Taking a Mortgage the WORST Decision Ever??
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