Come, join me in some maths – everyone’s favourite subject i’m sure…
Using the kiwi bank calculator a $200k mortgage over 20 years would cost an additional $169k in interest, add the original $200 to total $369k.
Say instead of buying now we wait 5 years and save $50k in the meantime (Completely do-able its $100 a week each – that’s kind of scarey huh), therefore in 5 years time we will only need a $150k mortgage which according to kiwi bank the interest would be $126k – total $276k. – Do you see where i’m going?
Of course we now have the cost of renting for 5 years to add into the mix, say on average $250 a week over 5 years = $65k. (Yes this is paying someone else’s mortgage but bare with me).
$276 + $65k = $341k for renting for 5 years then getting a mortage
Compared with $369 straight out buying right now.
Difference $28k in favor of renting / saving then buying.
Then you also have the cost of rates that you have saved over the 5 years, lets say they are $1500 a year (they would be more like $2-2.5k for most places here) thats another $7.5k saved by renting.
Now of course there are other factors that are hard to bring into the equation such as the cost of insurance on a house, it costs a lot more to insure a house & contents vs just contents, there are also repairs that you pay on a house, you will also earn some interest on the $50k while saving it, even just after a couple of years you should be able to get another $1k or so towards the deposit.
And on the side of buying a house there is always the fact that house prices could go up during that time (although I don’t believe in the whole let’s buy a house for the capital gain but thats another story), interest rates could change etc.
If we look at the basic facts, for us in this town it makes sense to wait and save our little butts off. So long as we can save, now that is the issue, if you can’t save and/or don’t want the hassle of renting it makes more sense to go straight into buying, so long as it’s where you want to be.
I know I won’t have any issue saving, that AP is already set up and creating me a deposit, it’s the other half that may have some difficulty with this, hence me doing the math, maybe the math can scare him into setting up his own AP that he was supposed to do a few months back!
If we had set those AP’s up when we started working we would have well over $50k for a house deposit saved, but that is life, we can only learn from our past mistakes or oversights and move on.
Obviously this theory will not work in all towns, we are lucky in that house prices are reasonably low and rents are also pretty low compared to the rest of the country.
Go on tell me my maths are wrong… 😛
Have you ever done similar maths and worked out the same/or opposite thing?
looks good to me! (at a glance). cool seeing it like this, makes it seem completely do-able and justifies renting and makes paying someone elses mortgage seem ok for a wee bit longer 😉
Yeah I always hated the thought of paying someone else’s mortgage so i’m glad that on paper it can actually be a benefit in the long run to pay someone else’s mortgage, although $65k over 5 years is kind of scarey!
The key is to start saving that deposit, the bigger deposit the less interest you have to pay in the end!