Should I Get a Mortgage?
Debt in general has caused no end of grief for a large chunk of the population. Easy credit and the constant bombardment of television and internet advertising all combined over the last decade to create the perfect storm for consumers who either weren’t aware – or chose to ignore – the potential dangers lurking down the road. Due to the lessons learned from this crisis many people seem to have developed a mentality that all debt is bad and should be avoided at all costs. While this fear of debt is no bad thing, it has also led some people to ask themselves ‘Should I get a mortgage?’. Should mortgage debt be placed in the same bracket as consumer debt? Or is mortgage debt acceptable debt?
Home Ownership isn’t essential, but it is desirable.
I’m not one of those people that thinks you simply have to own a house. There are many benefits to renting a property. In the long run though, I would say that home ownership is an admirable desire for the majority of the population. I’d hate to reach retirement age and not have a property that is paid up and mortgage free. When you consider the state of the public finances in the UK and the huge potential black hole in the state pension fund, I personally wouldn’t want to be reliant on benefits or a state pension in order to be able to pay the rent on a property during retirement. Even when it comes to private pensions we all know how unreliable they can be, susceptible to market fluctuations or worse yet market crashes. Again, not something I want to be reliant on.
Safe as Houses
In the long run – provided you make wise decisions and don’t get dragged into borrowing more than you can afford with crazy government schemes and the lure of low interest rates – I’m a great believer in the old adage that as an investment property is, as safe as houses. I can’t think of an example of anyone losing money on property when bought as a long term investment, though I’m sure there are exceptions to the rule. In general though property – when bought to be lived in – tends to be a good, solid investment as long as you can afford the repayments. We’ll leave buy-to-let’s for another post.
So should I get a Mortgage?
So these are the big questions, Should I get a mortgage? Is mortgage debt acceptable debt?
I know it’s a cliché and something that we have all heard before but the statement is undeniably true, paying rent is dead money. When you pay out rent each month you are in effect funding a good long-term investment that will benefit someone else, not you.
I’ve already mentioned that there are certainly good arguments for renting a property but I also think at the end of the day most people would still like to own their own property, investing in their own future rather than in somebody else’s. Realistically, how many of us will be able to make this kind of huge long term investment without taking out a mortgage? Yes the amount of money you pay out in interest over the mortgage term is phenomenal when you see it in writing (I remember my jaw fell through the floor when I looked at my mortgage illustration for the first time and saw the overall interest payable figure), but you will stay be paying that interest figure if you’re renting a property, you’ll just be paying it for somebody else to then own the property when their mortgage is paid up.
Another point that I don’t often hear thrown into the argument is the amount of rent you will have to pay after the point when you would have theoretically been mortgage free. Let’s say you’re going to live until the ripe old age of 80, a sad thought but still not a bad innings. Now let’s assume that you took out a mortgage to buy a house at 25 years old and paid it off over the following 25 years, leaving you mortgage free by the age of 50. Not only do you now own an increasing long term asset, you also now have 30 years of ‘Rent’ free living ahead of you. How much might that add up to in terms of savings? Well let’s pluck an average figure of £500 a month out of the air and use that, that’s £6000 a year. Over 30 years that’s £180,000 of rent that you won’t have to pay, all because you bought a house and invested in your future. Sure we have to deduct a chunk for maintenance costs along the way but I haven’t even factored in the effect of inflation on rental amounts into that figure, which I’m sure would more than cover it. So I would argue that on many house purchases this huge figure of saved rent goes a long way to making up for the interest you will have paid on your mortgage over the term. Plus you will have the asset of your own home and something to leave to your kids when you’re gone, giving them a head start in their life journey.
When should I buy?
Although not ideal I do believe that mortgage debt is acceptable debt and that the potential long-term benefits of home ownership far outweigh the interest paid on a mortgage loan. With that in mind we then start to wonder, when is the right time to buy?
Even though I feel that over the long-term, houses are as close a thing to a rock solid investment as you’ll find, I also feel that – these days – most people don’t stay in their first house for their whole adult life. With this in mind the decision of when to buy throws up a whole bunch of other questions that are probably best left for another day. If you’d like to speak to an advisor you can arrange a call back here.
What do you think? Is mortgage debt acceptable debt or are you content to rent?