Wow, you are being ripped off. At 4.5% (prob far more than you are paying) with a 200k loan you will repay a total of approx 333k over 25 years.
No, it’s 425K assuming you have interest only in the example above. Which is the case for many people in this inflated house price market.
And in my case, what happens when you’re a freelancer and your income is irregular and not consistent – you don’t get the normal loans 9 to 5:ers get. It’s a whole different ballgame with self certification. You only get the shyster loans. I suppose I could refinance, but I haven’t looked into that. Nothing has changed – I’m still a freelancer, so they’ll give me the whole rigmarole and painful song and dance all over again.
AdamFrisch wrote:
No, it’s 425K assuming you have interest only in the example above.
OK, but its not 800k.
Perhaps not, I can’t recall the full breakdown now but it seem to remember it was around £750K, but it’s been almost 8 years ago now. In all fairness, my house cost $269K, not $250K. I also managed to buy it and exchange the very month the world economy crashed. Now 8 years later it’s back to what I paid for it in value…
At least with planes you know you’re going to lose money. With houses you only think you’re not. 
Well the days of interest only mortgages, and self certification for business people, are well and truly over. I cannot get a mortgage, don’t want one,but that’s not actually the point. I am self employed……..actually, I cannot even get credit. Not that I want that either. As Adam points out, the UK propensity for buying property, not renting, works out at a colossal figure over the period of the debt. Add to that the “required insurances” another UK giant scam, and mix in the “crash”, oh Dear.
My view, has been for a long time, if you want something, save up and buy cash. You can negotiate an entry deal for cash, and you don’t lose it if you fail to keep up the payments. It then is always a sellable asset.
At least with planes you know you’re going to lose money. With houses you only think you’re not.
Adam, I bought my first home in my twenties, just before the early nineties property crash. Eight years later selling it would have cleared less than my original down payment. Happily I’d bought only half interest originally and at that point bought out my partner’s equity for 1K cash and refinanced. Now it would sell for 2-1/2 times as much and I still own it. Time heals all wounds if you have it, and rent can pay mortgages.
(Spoken like a man paying three mortgages, which is why my choice of planes has led me to pay cash for two that combined would sell for about a decade of your annual inspections on one aircraft!)
Mortages in Switzerland are extremely common, mailly because if you don’t have one, the tax on the house will kill you. As you are allowed to deduct the interest rates you pay, having a mortage is in the end cheaper than not having one. Background of that is of course that the main mortage business is done either directly or indirectly via pension funds which finance themselfs with the mortages. But with current interest rates of between 0.5 and 2% on mortages, having one is not that bad a deal anyhow, particularly if you never intend to pay it off before you retire anyhow for the aforementioned reasons. With a mortage on my terraced house, I pay about 20% of what i would pay if I had to rent a normal 4 room flat here, so it’s a no brainer. Apart, our property (bought in 2001) has probably gained about 2x the value it had when we bought it in this totally inflated house market.
BeechBaby wrote:
My view, has been for a long time, if you want something, save up and buy cash.
Depends on what it is but stuff like an airplane for personal use I am fully with you. But that unfortunately is something a lot of people today think that they don’t want to wait or rather it is not “fair” that they have to wait. Whatever happened to saving towards something? Certainly a lot of today’s youngsters have a very screwed idea about entitlement vs earning something.
Re buying new vs buying used, I can honestly say that the only stuff I buy new are everyday expenses like home electronics, furniture, clothing e.t.c. I am, at 52, on my 3rd car and don’t intend to change it if it doesn’t quit on me and my 2nd airplane, all of them were bought when most people think they should be thrown to the garbage, that is at over 100k km (cars) and in the case of my current airplane, at then 45 years of age. Mind, my Mooney gets 50 this year so I’m gonna throw it a nice party!
Reason behind that was simply: Buying used I can afford a much higher class of vehicle than I could if I bought new. I drive my 2nd Toyota Camry, a model which cost near 60k new and I got it for 8k when I bought it 10 years ago. Same for the Mooney: I could not have afforded a new airplane ever but now I fly a 150 kt full IFR airplane which i can in all probability sell for at least as much as I bought it for.
While it is good that there are people who have the cash and will to buy new, I don’t think I would even if I could.Depreciation is simply so horriffic, that it doesn’t bear thinking about. If my current Camry dies on me, I’ll probably have to buy a new one in the US (they don’t make it in Europe anymore and I don’t like the current lineup) but there a new Camry costs about as much as a minicompact here, including the ferry by ship. But I hope i won’t have to go there.
BeechBaby wrote:
My view, has been for a long time, if you want something, save up and buy cash.
Well, that’s easy to say if you do have the cash or if what you want is something you could just as well do without. For most people saving to buy something expensive but semi-necessary like a house or a car is not an option because when you have saved enough you will already have lived a substantial part of your life without it!
Sure it is more expensive to take a loan, but of you don’t have the cash, there’s no option. As the saying goes, it’s expensive to be poor.
BeechBaby wrote:
My view, has been for a long time, if you want something, save up and buy cash.
You should differentiate between acquisitions for consumption and investments. A car/airplane/holiday is consumption, a house is an investment. There is a big difference between financing a plane because you don’t have the money to buy it, and financing a house because you don’t have the money to buy it. Unless the markets are dysfunctional, not much can go wrong with a house. Obviously mortgages above let’s say 80% of the purchase price are stupid and pure gambling and the main reason of the 2008 crash. Switzerland might be an exception because of the weird law allowing you to deduct interest payments from your income (a huge subsidy for the banks) — there 100% mortgages with only interest payments in combination with investment in funds (another subsidy for the banks) makes a bit more sense than elsewhere.
BeechBaby wrote:
I cannot get a mortgage, don’t want one,but that’s not actually the point. I am self employed……..actually, I cannot even get credit.
That would point to a badly working banking system in your place. It is harder for self employed people everywhere because it’s just more difficult for banks to assess your financial situation and extrapolate it but if it was that difficult, self employment would be very unattractive. I’ve had those difficulties as well and I’ve always had to pay higher interest rates than my Mercedes/Porsche/Bosch/etc employed classmates but I had other advantages. If you negotiate a generous unscheduled payment clause, you gain flexibility over your constant-income-career-until-65-preplanned friends.
Would I ever finance a private airplane? Hell no. No airplane I can think of for my use has a market stable and large enough to qualify it for financing. You can finance an A320 easily because its value and depreciation is highly deterministic but not a small aircraft. Leasing it is a different story because there you buy insurance against depreciation but it’s extremely expensive. Sometimes you can use leasing to gamble. I leased my BMW i3 because of the dynamic development of electric vehicles, my estimation of the market value after 3 years is below BMW’s estimation (which I consider to be a promotion). They expect to double the range in the next generation and then I believe the first gen’s value will be close to nothing.
@achimha Switzerland allows deduction of interest charges from income however artificially increases your income with a “equivalent rental income” that you could get if you actually rented the place out. In addition capital gains are taxed according to a sliding scale function of ownership period and according to your “needs” e.g. if your kids move out and you sell your house, the state will consider that you need to buy a smaller house to fit your needs. Buying larger / similar sized incurs a possible capital gain penalty.
In addition there is no such thing as 100% mortgage anymore – minimum payment upfront is 25% plus about 5% notary fees. Yes one can pledge the private pension towards the 25% but still, given the current real estate prices (e.g. minimum 1 million CHF) not everybody has access…
Unless the markets are dysfunctional, not much can go wrong with a house.
I bought a house in 1987 for £105k and sold it in 1995 for £75k. That’s a 50% drop in value, after allowing for inflation. So it can go down…
Obviously mortgages above let’s say 80% of the purchase price are stupid and pure gambling and the main reason of the 2008 crash. Switzerland might be an exception because of the weird law allowing you to deduct interest payments from your income (a huge subsidy for the banks)
Same in the UK although the maximum allowance has been very limited in recent years.
