'The Good Debt, Bad Debt Game...' poll discussion

Vlasko

If the interest on the mortgage is higher than a rent, then it is better to rent. People should forget about the nonsense of 'paying landlords mortgage'.

npw32jnw

I think you are all looking a bit too hard at the questions (although I agree with Tojo Ralph about the school being a red herring). These are simple examples to help explain (primarily to children / young people, not to MSE's who use this site regularly) the difference between spending on necessities and luxuries, and getting into debt because of them.

Vlasko, not sure where you live, but where I am, I could not rent a 5 bedroom house similar to mine, for what I pay in interest on my mortgage - approx £250 on interest, rentals well over £1500. How likely is it that this is the situation for other people in the country? Also, you then have the knowledge that the money you are paying is reducing your debt as well and increasing your equity, rather than simply paying for your shelter. I don't quite see that the 'paying landlords mortgage' is nonsense - if your circs permit, why would you waste your money in that way? For instance, say rental is £1k per month and I pay that much onto my mortgage every month, in 5 years I could have cleared my mortgage and have an asset worth £250k which I own outright. If I had rented for all that time, I would have nothing. How, therefore would it be better to rent? Even if mortgage was more than rental each month, it would still pay in the long run, which is what people often fail to look at when considering property (people are still too concerned with short term gains on the property market)

Anyway, back to the main thread - you can always overanalyse a situation but surely we would all encourage people to take jobs and get into a relatively small amount of debt to make this work, rather than telling them not to take the job, and start / keep signing on. Therefore good debt in my opinion - there is not always another way, Isofa.

mcdogfood

Apparently I got it wrong.

My reasoning is this - if you can find another way to do it for less, then borrowing money is bad.

Cycling to work - 8 miles. Average bike speed - 15 miles an hour. Take 45 mins? Be lovely if he lives in the middle of nowhere! Also, if he's cycling to work, I'm sure he won't be single for long!

It's a statutory requirement to send your kids to school. Certainly when I was at school, if you lived more than 3 miles away, they had to provide you with a free bus pass. Even if there's no public transport, the education authority has a statutory requirement to provide transport to school for free if you live more than 'walking distance' away.

So, don't *need* a car, so bad debt!

Vlasko

npw32jnw wrote: »

I think you are all looking a bit too hard at the questions (although I agree with Tojo Ralph about the school being a red herring). These are simple examples to help explain (primarily to children / young people, not to MSE's who use this site regularly) the difference between spending on necessities and luxuries, and getting into debt because of them.

Vlasko, not sure where you live, but where I am, I could not rent a 5 bedroom house similar to mine, for what I pay in interest on my mortgage - approx £250 on interest, rentals well over £1500. How likely is it that this is the situation for other people in the country? Also, you then have the knowledge that the money you are paying is reducing your debt as well and increasing your equity, rather than simply paying for your shelter. I don't quite see that the 'paying landlords mortgage' is nonsense - if your circs permit, why would you waste your money in that way? For instance, say rental is £1k per month and I pay that much onto my mortgage every month, in 5 years I could have cleared my mortgage and have an asset worth £250k which I own outright. If I had rented for all that time, I would have nothing. How, therefore would it be better to rent? Even if mortgage was more than rental each month, it would still pay in the long run, which is what people often fail to look at when considering property (people are still too concerned with short term gains on the property market)

Actually I live in London and the rentals are in line with mortgage interests. But 2 years ago prices were significantly higher and interest rates also, so renting was much cheaper.
Whether you rent for 1000£ or pay interest on mortgage of 1000£, you are in the same situation - you do not own the property. In first case landlord owns it and in second one bank owns it. Your example is incorrect: you are refering to interest only mortgage(I was refering only to interest on mortgage!) in which case you have to pay extra to repay the capital.

blueberrypie

mcdogfood wrote: »

It's a statutory requirement to send your kids to school.

Erm...no, it isn't. The law says parents must provide an education "by regular attendance at school or otherwise" - and there are plenty of families who do it otherwise :-)

http://www.home-education.org.uk

Broken_hearted

All debt is bad debt if you stop being able to pay it.

udydudy

Vlasko wrote: »

Actually I live in London and the rentals are in line with mortgage interests. But 2 years ago prices were significantly higher and interest rates also, so renting was much cheaper.
Whether you rent for 1000£ or pay interest on mortgage of 1000£, you are in the same situation - you do not own the property. In first case landlord owns it and in second one bank owns it. Your example is incorrect: you are refering to interest only mortgage(I was refering only to interest on mortgage!) in which case you have to pay extra to repay the capital.

Sorry mate, the homeowner is always the owner of the mortgaged property. The bank only holds a charge against it in case of default. Also I am a proponent of "why pay the landlords mortgage" statement.

I am unsure if the situation which I will give applies anywhere here in UK but in Delhi ( also recently in Bombay) property prices are so high that paying rent seems a cheaper option as your mortgage interest is in most cases higher than rent paid. but if you see any property cycle(i normally prefer including 2 boom-bust cycles to smooth out when a buyer bought) the home buyer always wins as property prices always tend to keep going up in the longer term. unless somebody is so good as to time the property market to buy at the bottom(provided the banks will lend at that point).

ofcourse i would be able to comment on the UK market after another boom bust cycle as this is my first boom -bust cycle. I am sure it will pan out good in the long run.

rag31

Tojo_Ralph wrote: »

It's all well and good saying no-brainer, but without basic facts, IMHO, one cannot begin to answer the question.
...

We can answer the question based on the known facts, and with the facts we have at hand I personally would say no brainer. Obviously if then we were given other facts or information we could review that decision and maybe opt for something else.

Becky

teddyco

I would say that this is 'good debt' because it would be debt that is used to increase value. In this case, income from a job.

Good Debt is investment debt that creates value and Bad Debt is debt that leads to lower or no value.

In this case, an automobile at £1500 has probably lost most of its' depreciation. Although it is 12% interest, it is still giving the owner the avenue to create value through his job. He will most likely be able to flip his loan to a lower value or pay it off in full in the future once he shows income from the job.

before_hollywood

mcdogfood wrote: »

Apparently I got it wrong.

My reasoning is this - if you can find another way to do it for less, then borrowing money is bad.

Cycling to work - 8 miles. Average bike speed - 15 miles an hour. Take 45 mins? Be lovely if he lives in the middle of nowhere! Also, if he's cycling to work, I'm sure he won't be single for long!

It's a statutory requirement to send your kids to school. Certainly when I was at school, if you lived more than 3 miles away, they had to provide you with a free bus pass. Even if there's no public transport, the education authority has a statutory requirement to provide transport to school for free if you live more than 'walking distance' away.

So, don't *need* a car, so bad debt!

what about people like me? i'm unable to ride a bike due to a disability but am not classed as disabled

in that situation i would need a car whereas some others might not