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Is Taking a Mortgage the WORST Decision Ever??
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MaichBlack
#1 Posted : Wednesday, May 07, 2014 8:59:52 AM
Rank: Elder

Joined: 7/22/2009
Posts: 7,910
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???
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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MaichBlack
#2 Posted : Wednesday, May 07, 2014 9:05:15 AM
Rank: Elder

Joined: 7/22/2009
Posts: 7,910
Explanation of the [Microsoft Excel] functions used.


PMT - Calculates the payment for a loan based on constant payments and a constant interest rate.

Syntax

=PMT(rate,nper,pv,fv,type)

Rate - is the interest rate for the loan. . [Divide by 12 if payments are monthly]
Nper - is the total number of payments for the loan.
Pv - is the present value, or the total amount that a series of future payments is worth now; also known as the principal.
Fv - is the future value, or a cash balance you want to attain after the last payment is made. If fv is omitted, it is assumed to be 0 (zero), that is, the future value of a loan is 0.
Type - is the number 0 (zero) or 1 and indicates when payments are due.


FV – Used to calculate future value based fixed periodic payments

Syntax:

=FV(rate,nper,pmt,pv,type)

Rate - is the interest rate per period. [Divide by 12 if payments are monthly]
Nper - is the total number of payment periods in an annuity.
Pmt - is the payment made each period; it cannot change over the life of the annuity. Typically, pmt contains principal and interest but no other fees or taxes.
Pv - is the present value, or the lump-sum amount that a series of future payments is worth right now.
Type - is the number 0 or 1 and indicates when payments are due. If type is omitted, it is assumed to be 0.
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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MaichBlack
#3 Posted : Wednesday, May 07, 2014 9:12:50 AM
Rank: Elder

Joined: 7/22/2009
Posts: 7,910
Suggestion: Make changes to the values in the FV function depending on expected % returns, period and payments and see how much your investment will be worth.

For example if you can manage 30% annual returns, your investment would be worth Kshs. 1,494,951,859.95. If you can manage 35% annual returns your investment would be worth Kshs. 3,398,177,149.32

Yes!!! Kshs. 1.5 Billion and Kshs. 3.4 Billion respectively! With a B. He he he.

Or you could be the proud owner of a 20 year old house. Choose!!!

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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vin
#4 Posted : Wednesday, May 07, 2014 9:15:11 AM
Rank: Member

Joined: 1/22/2007
Posts: 337
@maich,
I am pleased with the way you tell your story using figures.Someone told me you can always confuse and convince anyone using numbers.thanks for this information,but could you please in good faith give an example of what investment of such figure yield such a return.l would not mind doing it myself.Thanks and be blessed.
Advice is like snow.The softer it lands the harder is sticks.
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  | | Edit by user: Wednesday, May 07, 2014 9:16 AM | Reason: Not specified
Lolest!
#5 Posted : Wednesday, May 07, 2014 9:17:48 AM
Rank: Elder

Joined: 3/18/2011
Posts: 12,069
Location: Kianjokoma
Great piieces @blackman. But how many people make 25pc per year on investments?
Laughing out loudly smile Applause d'oh! Sad Drool Liar Shame on you Pray
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Sufficiently Philanga....thropic
#6 Posted : Wednesday, May 07, 2014 9:27:18 AM
Rank: Elder

Joined: 9/23/2010
Posts: 2,225
Location: Sundowner,Amboseli
Lolest! wrote:
Great piieces @blackman. But how many people make 25pc per year on investments?

If you cant do 25%, work with a lower percentage, you will still be better off than sinking in debt(Mortgage)or better still,tupatie pesa tukutengenezee hapa NSE.
#GoForthAndMultiplyYourMoneysmile
@SufficientlyP
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KulaRaha
#7 Posted : Wednesday, May 07, 2014 9:31:47 AM
Rank: Elder

Joined: 7/26/2007
Posts: 6,514
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!
Business opportunities are like buses,there's always another one coming
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Sufficiently Philanga....thropic
#8 Posted : Wednesday, May 07, 2014 9:34:26 AM
Rank: Elder

Joined: 9/23/2010
Posts: 2,225
Location: Sundowner,Amboseli
Avoid debt(slavery) at all costs.You will be working for the KCBs and Equitys of this world. Better to work with the little you have.Then you will have PEACE-THE ULTIMATE GOAL!
@SufficientlyP
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MaichBlack
#9 Posted : Wednesday, May 07, 2014 9:47:56 AM
Rank: Elder

Joined: 7/22/2009
Posts: 7,910
vin wrote:
@maich,
I am pleased with the way you tell your story using figures.Someone told me you can always confuse and convince anyone using numbers.thanks for this information,but could you please in good faith give an example of what investment of such figure yield such a return.l would not mind doing it myself.Thanks and be blessed.

Lolest! wrote:
Great piieces @blackman. But how many people make 25pc per year on investments?


@vin and @Laughing out loudly - You can easily get such returns in the stock market. A number of wazuans [starting with @stocksmaster - a wazuan I greatly respect], post this information free of charge in this forum

See this thread started by @stocksmaster in January this year.

Diamond Trust Bank
Buying Price: 192/=
Current Price: 236/=
% gain: 23%

Housing Finance
Buying Price: 31.25/=
Current Price: 37.25/=
% gain: 19.2%

TPS Serena:
Buying Price: 46/=
Current Price: 41/=
% gain: - 10%

And that is in 4 months!!! a good number disagreed with TPS Serena, so you would have probably avoided it. May be.

In 2010, the fellow made a return of 109.7%!!! And he posted the information real time - When buying and when selling. Sio pang'ang'a!

Here is the evidence:

Starting the thread - Jan 1 2010

Year End Report - post#367

Links for performance of his picks for 2011, 2012 and 2013 can be found here
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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jaggernaut
#10 Posted : Wednesday, May 07, 2014 10:12:07 AM
Rank: Elder

Joined: 10/9/2008
Posts: 5,389
Saw this advert on yesterday's Washington Post. Are these mortgage rates real or there are numerous hidden charges? Cheapest in Kenya is currently about 14%.
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  | | Edit by user: Wednesday, May 07, 2014 10:13 AM | Reason: Not specified
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