Mortgage Interest is DEAD MONEY

twadge_face

So, in response to this thread, to which I responded with this post, I once again take it upon myself to put across the opposing argument to the idea that rent is dead money.

OK, rent IS "dead" money. But... so is mortgage interest.

And how annoying is dead money in the form of mortgage interest when house prices are going down as they currently are?

Pretty annoying when that over-extended massive mortgage is your sole financial "bet" in a hugely distorted housing market.

There is much more at stake with the dead money through mortgage interest than from rent, e.g. when renting you can never experience negative equity, nor do you have to wait for a chain to complete (fail, lol!) with INCONCEIVABLE house prices.

I'd say "you've been warned" but I wouldn't want to be so ignorantly patronising as the the daft subintelligent voice of the originating thread.

People's single-mindedness about all this is so... disappointing.

Loughton_Monkey

You cannot compare mortgage interest with rent for this purpose. They are two different things.

Rent money is "dead" in this context. Like any form of buying, you are paying a 'fair market price' for a product - which in this case is the right to have a roof over your head. Each month's rent gives you one month's 'utility'. Same as any other spending really.

If you take an extremely narrow and pedantic view, then mortgage Interest is similar in that you pay a 'fair market price' for a product - except the product is temporary use of £250,000.

But leave aside the pedantry, the reason you have the £250,000 is so that you can invest it in a property. So let's look at the whole deal. As a by-product, is gives you the same 'utility' as renting - the right to a roof over your head. But you are also getting 100% of the profits from that investment.

[I will just refer, here, to the venemous abuse, ridicule, and sarcasm that will be due to all the namby-pamby idiots who respond with their short-term doom and gloom about double-dip, negative equity etc. The 'product' is one that lasts 25 years so even to hint that this will not be an investment over 25 years will expose anyone for the moron that they are.]

Therefore, the only way mortgage interest could be 'dead money' is a scenario like any of the following.

1. The mortgage interest cost vastly exceeds the 'market rent' for the house, to the extent that the excess cost will not represent a positive rate of return when set against the eventual house profit.

2. The mortgage interest cost is equal to, or less than, the 'market rent' and the house does not increase in value over 25 years.

The logic needs, I admit, minor adjustement to reflect additional cost of ownership such as insurance, maintenance etc. but these average quite a low percentage of value.

I would therefore strongly disagree that a long term mortgage, for residential purposes is 'dead money'. As to a debate (fine tuning really) about whether to buy this minute, or possibly wait 12/24 months before buying is an entirely different and valid debate. It would be extremely tiresome to see this thread descend to yet another 'tennis match' about what house prices are going to do next month or next January.

For 6 years, I rented out my main home. For those 6 years:

Average mortgage interest per annum = £11,264
Average Rent received per annum = £20,416
Increase in house value over 6 year period = 86%

So tell me. Who's was the 'dead money'? Mine, or the tenants?

Blacklight

!!!!!!_face wrote: »

And how annoying is dead money in the form of mortgage interest when house prices are going down as they currently are?

Are they?

That might be your perception fueled by the left wing anti government media and a few tin foil hat trolls on the internet. The figures tell a different story.

I take it you rent a place?

JonnyBravo

!!!!!!_face wrote: »

People's single-mindedness about all this is so... disappointing.

What single-mindedness?
The fact that you can't help yourself but respond to a troll thread with a whole new troll thread?
Take a look in the mirror, you've got a hook embedded in your lip.

doire_2

Blacklight wrote: »

Are they?

That might be your perception fueled by the left wing anti government media and a few tin foil hat trolls on the internet. The figures tell a different story.

I take it you rent a place?

Is that the big bad BBC who are helping to cause all the doom and gloom so that they can make more money?

Amanita_2

!!!!!!_face wrote: »

I once again take it upon myself to put across the opposing argument to the idea that rent is dead money.

OK, rent IS "dead" money. But... so is mortgage interest.

And how annoying is dead money in the form of mortgage interest when house prices are going down as they currently are?

Of course it is :cool:.

We were in negative equity when mortgage rates hit 15% plus with a mortgage of 3.5 times our joint earnings granted 12 months before - only by then I wasn't working so things were very tight.

I regret not a moment. The house was paid off by the time I was 41. If I was renting I'd be paying rent for ever.

Cleaver

!!!!!!_face wrote: »

OK, rent IS "dead" money. But... so is mortgage interest.

And how annoying is dead money in the form of mortgage interest when house prices are going down as they currently are?

Pretty annoying when that over-extended massive mortgage is your sole financial "bet" in a hugely distorted housing market.

I know you're trolling in the same way as the rental thread person was trolling, but I'll throw my two penneth in anyway.

When I rented a property it wasn't 'dead money' as I wanted to rent a propety, and I did so for about 4 years. I was very happy with the arrangement - I didn't want to buy a house and, luckily, there were rental properties available at a price I was happy with. I never thought of it as 'dead money', as I was getting a product for a price I was happy with. It couldn't give two hoots if it was 'paying off someone elses mortgage' in the same way I don't give two hoots when I buy a product from B&Q and I'm paying MR B&Q's mortgage off.

Now I own a house and I also don't see mortgage interest as 'dead money' for exactly the same reason. We decided to buy this home, worked out what the mortgage interest would be over a 25 year period and that's just that. We're happy with the arrangement, same as when we rented.

I'm sure there are some out there who just hate giving rent out each month and some who really begrudge paying mortgage interest. Ahh well. Both are a fact of life, you make your choices and just live with it. Let's stop all this 'dead money' cr*p.

RenovationMan

I have always said that there is no difference between renting from the bank (mortgage interest) and rent, apart from two things:

1. I have security of tenure that a rental property cant compete with. No moving house because my landlord is selling up.

2. I can make overpayments to reduce the capital part of my mortgage loan and this in turn reduces the amount of interest I pay. If you overpay on your rent, it wont reduce.

Good thread though. I like these school yard arguments, there great fun.

Really2

!!!!!!_face wrote: »

S
OK, rent IS "dead" money. But... so is mortgage interest.

It is, but at £130PM it enables capital repayments of £1000PM.
So are capital repayments undead money?

AD9898_2

Don't really agree that mortgage interest is dead money, as has been said there are significant advantages to owning rather than renting IF that is what you want.

Rent isn't dead money either, UNLESS you want to own but can't, then it can be perceived to be dead money from your perspective.

DervProf

I`m going to go all "Hamish" for a second or two........

Renting or paying mortgage interest is dead money. That`s why I offset and overpayed my mortgage. My mortgage is now next to nothing, so the £15 per month I`m paying isn`t exactly a problem. I`ve never been bothered about the value of my home*, as it`s where I sleep and spend my spare time. This means it`s win-win for me, I don`t give a **** about how much this place is worth, and it`s not costing me much to live here. :beer:

Apologies to all potential FTB`ers, as I was lucky enough to buy pre-boom (mid 90`s), and didn`t have to take on a large mortgage.

*I do however get concerned when property prices are rising faster than wages or general inflation, as this generally leads to financial problems for both individuals and the wider economy.