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Is Taking a Mortgage the WORST Decision Ever??
Rank: Elder Joined: 7/22/2009 Posts: 7,451
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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??? Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Member Joined: 8/5/2011 Posts: 125
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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
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Rank: Hello Joined: 12/18/2014 Posts: 5
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I am not trying to confuse any Kenyans, but talking from experience having taken a mortgage a while back. The first five years are tough, though nothing comes easy. Am also not claiming to be an expert, like I see some people do on this forum, and Kenyans free to make the decision based on detailed research and analysis, knowing there's always two sides of a coin.
While doing the maths, replace the 11%, with 15% and the monthly repayment for Mr. Y is 79,007.37, meaning Mr. Y will be paying 34k more than X per month and in 20 years he will have paid 8m more than Mr X rent. Y still owns the house which Mr X does not. Also 6m houses renting at 45k are there already, just need to do your homework. Getting a mortgages for 11% in Kenya is a reality, with bankers getting even 6%. Look for banks with proper mortgage facilities, not any bank loan renamed into a mortgage.
Even if X is not putting the difference under a Mattress, does he have a guarantee the small amounts per month will make him equivalent to Mr. Y house value? Emergencies that can wait always find their way into his alternative investments too, while for the house it’s not easy to interrupt the payments.
Also remember Mr. Y can accelerate his repayments bringing down the 8m difference drastically. He can also sell his house after a few years if the capital gain is good and clear his mortgage to get seed capital. I have seen areas multiply in value for the last five years and such opportunities still exist. If one buys in an already mature neighbourhood, much of the value is in the name and the rate of gain is much lower though. Trick is in identifying the proper location and they are very many at the moment.
Merry XMas and Happy 2015 to Wazua Community and their families.
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Rank: User Joined: 1/20/2014 Posts: 3,528
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Take the simple scenario currently playing at Coop. Two employees earning same salary, one with loans and the other without. Who is the biggest beneficary if both are retreched? Formal education will make you a living. Self-education will make you a fortune - Jim Rohn.
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Rank: Elder Joined: 6/23/2009 Posts: 13,472 Location: nairobi
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Othelo wrote:Take the simple scenario currently playing at Coop. Two employees earning same salary, one with loans and the other without. Who is the biggest beneficary if both are retreched? Ofcourse. The one without is far better off. Debt is from the devil
HF 428,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 15,750 ABP 6.45
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Rank: Elder Joined: 2/16/2007 Posts: 2,114
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obiero wrote:Othelo wrote:Take the simple scenario currently playing at Coop. Two employees earning same salary, one with loans and the other without. Who is the biggest beneficary if both are retreched? Ofcourse. The one without is far better off. Debt is from the devil Maybe the one with a debt has a working spouse who can take it up from there?
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Rank: Member Joined: 8/5/2011 Posts: 125
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Othelo wrote:Take the simple scenario currently playing at Coop. Two employees earning same salary, one with loans and the other without. Who is the biggest beneficary if both are retreched? I know someone from coop, who is being retrenched. Has built many rental units that bring in 300K, built with coop staff mortgage. Costs him 180k to repay. His outstanding (after fast tracking repayments using the rent collected) will be repaid with his retrenchment dues. And he remains with the rental income. Mortgages/loans tend to be a necessary "evil"
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Rank: Elder Joined: 6/23/2009 Posts: 13,472 Location: nairobi
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Chaka wrote:obiero wrote:Othelo wrote:Take the simple scenario currently playing at Coop. Two employees earning same salary, one with loans and the other without. Who is the biggest beneficary if both are retreched? Ofcourse. The one without is far better off. Debt is from the devil Maybe the one with a debt has a working spouse who can take it up from there? It depends on what sort of a loan it is.. Kama ni ile the wife never knew about, it wld be hard to get her to pay for it.. :)
HF 428,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 15,750 ABP 6.45
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Rank: Veteran Joined: 11/15/2013 Posts: 1,977 Location: Here
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obiero wrote:Othelo wrote:Take the simple scenario currently playing at Coop. Two employees earning same salary, one with loans and the other without. Who is the biggest beneficary if both are retreched? Ofcourse. The one without is far better off. Debt is from the devil   Debt is from Devil,Loans from Lucifer. Gains from God,Returns from Rabii. i don't know where Tax came from especially CGT .... Everybody STEALS, a THIEF is one who's CAUGHT stealing something of LITTLE VALUE. !!!
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Rank: Veteran Joined: 12/8/2009 Posts: 972 Location: Nairobi
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obiero wrote:Othelo wrote:Take the simple scenario currently playing at Coop. Two employees earning same salary, one with loans and the other without. Who is the biggest beneficary if both are retreched? Ofcourse. The one without is far better off. Debt is from the devil Ati from the devil? OK!!! You will know that you have arrived when money and time are not mutually exclusive "events" in you life!
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Rank: Veteran Joined: 9/18/2014 Posts: 1,127
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Upto and until when the mortgage interest rates are either equal to or lower than the rental yields(8-12%) will mortgages make economic sense. As it stands mortgages are for guys with lazy investment minds. The main purpose of the stock market is to make fools of as many people as possible.
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Rank: New-farer Joined: 9/20/2010 Posts: 79
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debt trap indeed for coop fellows.
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Rank: Veteran Joined: 2/3/2010 Posts: 1,797 Location: Kenya
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Those who say dont know and those who know dont say I may be wrong..but then I could be right
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Rank: Veteran Joined: 2/21/2012 Posts: 1,739
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Shocking we have people in support of Mortgage this day. It Puzzles!!  Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God..
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Rank: User Joined: 1/20/2014 Posts: 3,528
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Do what is best for you. My mortgage has worked for me and i am not regretting!!! Formal education will make you a living. Self-education will make you a fortune - Jim Rohn.
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Rank: Veteran Joined: 12/8/2009 Posts: 972 Location: Nairobi
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Am wrote:Shocking we have people in support of Mortgage this day. It Puzzles!! @Am You still think that in such matters there's an absolute right way and the wrong way? You will know that you have arrived when money and time are not mutually exclusive "events" in you life!
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Rank: Elder Joined: 7/11/2012 Posts: 5,222
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Caesar! Give unto Caesar what belongs to Caesar. Given the two scenarios above, I'd say the one with loan IF HE IS WISE! Supposing the loan is a mortgage, he can sell off the house, pay off his mortgage and will be left with something.... as opposed to the one without a loan, who has nothing. Even better is, there is a 40% rebate. If the 'handshake' is sufficient enough to repay the 60%, the fellow has a house at much reduced costs!
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Rank: Hello Joined: 12/18/2014 Posts: 5
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Exactly my point Bwana Mukiri. Plus majority of the 160 guys have worked 10 to 15 years. The wise ones who took mortgages have properties that have increased in value more than 100% and they used Coop money to get there. The unwise have wasted a lot of money on rent and can't claim a thing from their landlords. If the wise were to sell their property they have money to reorganise themselves and may not need to seek employments again.
Happy Holidays and Blessed 2015.
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Rank: Elder Joined: 7/11/2012 Posts: 5,222
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JKN wrote:Exactly my point Bwana Mukiri. Plus majority of the 160 guys have worked 10 to 15 years. The wise ones who took mortgages have properties that have increased in value more than 100% and they used Coop money to get there. The unwise have wasted a lot of money on rent and can't claim a thing from their landlords. If the wise were to sell their property they have money to reorganise themselves and may not need to seek employments again.
Happy Holidays and Blessed 2015. A Merry Christmas and Happy and Prosperous New year to you too. Let us hope that we'll all be more braver and/or wiser, in the coming year.
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Rank: New-farer Joined: 9/25/2012 Posts: 58 Location: kenia
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Mortgages=Debt Till Death! Time To Re-Think :( :(
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Is Taking a Mortgage the WORST Decision Ever??
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