Cost of rental vs interest on a mortgage - how to compare?

moneysavinmonkey

mortgages exposed have some lovely readymade spreadsheets,
including a buy vs rent, but also ones for overpaying and offset mortgages and allsorts.

first spreadsheet here: http://www.mortgagesexposed.com/Book_Contents/spreadsheet_summary.htm


Whatever figures I put in it for me whilst HPI is negative it is always better to rent!

franklee

ukcarper wrote: »

Why not use a longer timescale once the mortgage is paid off you will be living rent free

Because I think that house prices are still falling and will do for a year or two. In the longer term I do think that buying is the way to go for the reason you state but I'd take the short term gain of falling house prices first in order to cut down the amount I pay as after all every pound borrowed comes with an interest charge for every year it's still owed which mounts up.

ukcarper

franklee wrote: »

Because I think that house prices are still falling and will do for a year or two. In the longer term I do think that buying is the way to go for the reason you state but I'd take the short term gain of falling house prices first in order to cut down the amount I pay as after all every pound borrowed comes with an interest charge for every year it's still owed which mounts up.

I agree about not buying at the moment but judgeing the bottom and finding a house in that period might not be easy. As for dead money it really depends on how long you stay in the house, unless of course HPI takes hold again.

getmore4less

The calculations should be based on the cost of ownership against renting not just the interest

Should be based on borrowing for the approximate value of the house + the costs of owndership that in a rental are covered by the landlord.

The reason for this is that you have capital in the place that has lost opportunity costs. IF you just use the mortgage numbers they will be on low side for ownership.

THe other thing to be carefull with is the interest rates used at the moment we are at historic lows so it favours buying, long trerm 10y+ fix rates would be a fairer rate to use.


There are also the woolly factors that differ for different people,

ease of moving(easy renting not so owning)
ease of getting benifits(gap has closed)
security of tenure(better with owning if you keep you payments up)
etc.

bob79

Inflation, don't forget inflation. Your mortgage won't go up with inflation, but rent will. This makes a massive difference over the long term.

franklee

ukcarper wrote: »

I agree about not buying at the moment but judgeing the bottom and finding a house in that period might not be easy. As for dead money it really depends on how long you stay in the house, unless of course HPI takes hold again.

I think the bottom is easier to find than the top as it goes on longer, but don't expect to know the absolute bottom in my target areas till after the event. I wouldn't worry too much about hitting the bottom exactly, so long as it's near enough being a bit early or late doesn't matter, I'm happy it's at least a year off yet.

franklee

bob79 wrote: »

Inflation, don't forget inflation. Your mortgage won't go up with inflation, but rent will. This makes a massive difference over the long term.

Or come to that deflation which we've seen in rents recently A mortgage will be affected by deflation/inflation as interest rates change, as we have just seen with large changes in rates which will I'd expect be reversed in future.

the_ash_and_the_oak

kinda feeling the bottom will be marked by a period of stagnation - w it being still difficult to buy even tho capital outlay is at its cheapest. could be a good time to buy at that point even tho rates might be pretty high if they're keeping prices pretty low