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As a general rule, buying something because prices just go up and up and up is a good way to get thoroughly shafted. At the very least consider the following:

by philk 17y ago

As a general rule, buying something because prices just go up and up and up is a good way to get thoroughly shafted. At the very least consider the following: a) What is your rent currently compared to your mortgage repayments? If you're going to be paying more, just rent and invest the difference in something else. b) Do you have ambitions of quitting your job and starting a company? If so, having a large mortgage is only going to hinder that goal (it's far easier to make the plunge when you don't have to worry about servicing a large debt, and it's much less painful to downsize between apartments when you're leasing.) c) Consider whether you're going to want to do the place up, which can be a huge black hole as far as money is concerned. d) Finally, if you're living with a partner, consider whether you're willing to have the added financial entanglements that owning a house together will entail. (I personally rule house ownership out for reasons a), b) and d))

sailormoon 17y ago
Thanks for the reply. Some very good points. Rent is quite a bit less than mortgage payments would be, but at least with mortgage payments you're paying off your loan, not someone else's! I'm not too worried about (b) because I'd be trying to start something in my spare time, then only quitting the day job if it was actually paying enough for me to do so. Part c - well, I'd be looking for a fairly new place .. and as for (d), it's much too late for that .. I think that what I'm taking from this article is that I have to identify a lot of "unknown unknowns". I admit that I was naively assuming housing prices around here would just go up forever; this article raises the question that they might not and I need to sit down, learn about this stuff and make an informed decision...
- blahedo 17y ago
  On the topic of "paying off your loan": be a little careful with that, because for the first several years of a mortgage (at least as usually structured in the US, but I think this is typical elsewhere too) you're not paying off the principal by very much; and if you rent rather than buy, you are not responsible for building upkeep and the little surprises that an owned home always seems to throw at you at inconvenient times.
- philk 17y ago
  >> but at least with mortgage payments you're paying off your loan, not someone else's! As an example, if you're looking in the Sydney CBD you could easily be borrowing ~$400K (or more). At interest rates of 6% a year initially you'd be paying $24K/year or approximately $460/week to the bank. At least for the first few years you'll be paying almost the equivalent of rent to the bank just to service the loan, in addition to the repayments off the principal.
pmccool 17y ago
Regarding point a): something to bear in mind is that rent payments are more or less guaranteed to keep going up, all things being equal. Mortgage payments are not. You also get some equity out of mortgage payments, whereas you don't out of rent. OTOH, getting money out of a house is more expensive and time-consuming that most kinds of investment I'm aware of. I don't entirely disagree with the reasoning, mind you, but I think that direct comparisons between renting and buying are problematic.
- philk 17y ago
  True, but if you're investing the difference in index funds dividends will generally keep going up over time (somewhat in line with the capital appreciation). >> I don't entirely disagree with the reasoning, mind you, but I think that direct comparisons between renting and buying are problematic. It's a fair point but as you have to pick one or the other the only thing you can really do is crunch the numbers and account for the intangibles and then make the best decision you can.

by philk 17y ago

sailormoon 17y ago

Thanks for the reply. Some very good points. Rent is quite a bit less than mortgage payments would be, but at least with mortgage payments you're paying off your loan, not someone else's! I'm not too worried about (b) because I'd be trying to start something in my spare time, then only quitting the day job if it was actually paying enough for me to do so. Part c - well, I'd be looking for a fairly new place .. and as for (d), it's much too late for that .. I think that what I'm taking from this article is that I have to identify a lot of "unknown unknowns". I admit that I was naively assuming housing prices around here would just go up forever; this article raises the question that they might not and I need to sit down, learn about this stuff and make an informed decision...

blahedo 17y ago
On the topic of "paying off your loan": be a little careful with that, because for the first several years of a mortgage (at least as usually structured in the US, but I think this is typical elsewhere too) you're not paying off the principal by very much; and if you rent rather than buy, you are not responsible for building upkeep and the little surprises that an owned home always seems to throw at you at inconvenient times.
philk 17y ago
>> but at least with mortgage payments you're paying off your loan, not someone else's! As an example, if you're looking in the Sydney CBD you could easily be borrowing ~$400K (or more). At interest rates of 6% a year initially you'd be paying $24K/year or approximately $460/week to the bank. At least for the first few years you'll be paying almost the equivalent of rent to the bank just to service the loan, in addition to the repayments off the principal.

pmccool 17y ago

Regarding point a): something to bear in mind is that rent payments are more or less guaranteed to keep going up, all things being equal. Mortgage payments are not. You also get some equity out of mortgage payments, whereas you don't out of rent. OTOH, getting money out of a house is more expensive and time-consuming that most kinds of investment I'm aware of. I don't entirely disagree with the reasoning, mind you, but I think that direct comparisons between renting and buying are problematic.

philk 17y ago
True, but if you're investing the difference in index funds dividends will generally keep going up over time (somewhat in line with the capital appreciation). >> I don't entirely disagree with the reasoning, mind you, but I think that direct comparisons between renting and buying are problematic. It's a fair point but as you have to pick one or the other the only thing you can really do is crunch the numbers and account for the intangibles and then make the best decision you can.