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10 Pros And Cons of Mortgage That Might Surprise You
Buying Advantages and Disadvantages You Haven't Thought About
10 Hidden Pros Of Mortgage
Home mortgage interest is very tax-optimized compared to other ways you might borrow money to fund more consumption that you can afford.
The thing to keep in mind is that you pay tax on your other investments but capital gains on your PPOR are tax free. Then in retirement your PPOR does not affect your pension but any other asset does.
Real estate is an appreciating asset (with inflation), and that appreciation is tax free.
Buying takes the lead when you factor in retirement. I'll have a house paid off well before I retire, but somebody who's rented for their whole life will be spending a big chunk of their super/pension on rent.
Having a mortgage and working hard to pay that off as quickly as possible is forcing us with our wealth management, forcing us to save longer term.
Mortgages allow you to sell without selling. Simply get a new mortgage, and pull the equity out of the house. You may then be able to use the equity to fund an investment such as shares or a managed fund.
Average house prices have been consistently rising faster than average income in most developed countries.
The stress of having mortgage can be a good thing as it raises your budgeting standards dramatically.
Historically, rates are good right now, and when compared to 30 years ago, rates are exceptional.
The money you'll be using to pay back the loan in ten years will worth less than the same payment now while the rent payments will keep going up with inflation.
10 Hidden Cons Of Mortgage
Home ownership can be more expensive when you factor in rates, building insurance, cost of repairs, and strata fees. Maintenance on a property you own is as much "dead money" as rent. Council rates, water service rates, land tax, etc – all equally "dead money".
Since 2000, rental income has not even covered interest charges. No rational individual purchases an asset that generates a net negative yield – but clearly speculators have been pursuing capital gains instead.
If your primary residence has doubled in value since you bought it, from a practical standpoint, it probably just means that your real estate taxes have gone up. All of the gains that you have experienced is merely a gain on paper until you sell the property. If you chose to sell and hope to purchase another home in the same area, remember that the prices of other homes have risen too.
If more than 25% of your income will be going out in payments that will put strain on the rest of your budget. You won't be able to save and pay cash for furniture, cars and kids education.
Sick children, bad transmissions, prom dresses, high heat bills and pet vaccinations come up, and you won't make the extra payments. 97.3% of people don't systematically pay extra on their mortgages.
Paying extra towards your mortgage early is not an additional investment in your house. You already own the house so you are already exposed to any change in home value regardless of your mortgage size.
When buying people are betting on capital gains to get a decent ROI. You can never know for certain if the value of your property will increase, and you may find that you lose money on the property if you choose to sell.
Interest rates on mortgages are constantly changing and can increase.
When you buy house (and if you are like me ie normal bloke with normal working wages and partner stays at home) then you go under this massive debt and next 15-20 years of your life is spent on thinking how to reduce this loan and all your efforts are spent on that.
Young people today, in particular, haven't really grasped the high costs of borrowing in times of low inflation. Most of them are leaning towards the experience of their parents, who bought at times of high inflation when the debt was eroded very quickly and made very good gains because of high inflation.
Helping People to Be Really Realistic
Buying Advantages and Disadvantages You Haven't Thought AboutRead...
by Alex Ershov @ 2019
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