How is this possible - mortgage

[Mortgageh]

If I take out a mortgage of £200k over 35 years with an interest rate of 6%, my monthly payments would be £1250. This would mean I'm paying nearly £500k?!!

It's my first time doing something like this and I'm really confused so just wondering if anyone can explain this, thank you

Very simplistic and not quite right. The depressing thing is if you rent at £1k/month, and pay it from age 30 to age 90, your housing will have cost you 720k by the time you die. And you will have to find that rent right till you die. It might cost you £500k for your £250k house but it will be free to live in for your non-working, elderly years, and you have a big asset. So essentially the dead money is only £250k.

In a 60+ year period your purchased house will almost certainly need a new roof and new windows, so add on another £30,000-£50,000 in addition to various other building & renovation jobs, costs of boiler replacement, new kitchens/bathrooms and so on. The mortgage isn't the only housing cost for people who buy their houses. Anyone with a leasehold property or a flat will also have additional costs for ground rent and/or communal repairs. A house is never free to live in: there are always additional costs. Overall, it's still preferable to renting if you can afford it.

This!

It’s also why people who say ‘I paid £100k for a home, sold it for £120k and made £20k profit’ are talking out of their arses. Unless you paid cash you still made a massive loss in real terms.

It will. Housing association rent is most preferable tbh

You don’t understand how mortgages work at all & I’d question your financial literacy. How can a grown up post a comment like this in all seriousness!

It’s also why people who say ‘I paid £100k for a home, sold it for £120k and made £20k profit’ are talking out of their arses. Unless you paid cash you still made a massive loss in real terms.

So having had a secure home to live in for all that time, meaning that you didn't have to pay anybody any rent, doesn't count for anything at all?

@JustAMinutePleass i would really appreciate it if you could explain then.

Surely, if you take out a loan you pay the amount back that you owed and the interest. Therefore in pure terms if you have to count the cost of item (the house) and the interest you spend on top of that (the mortgage). Now I know this is in $ but the amounts in percentage terms are the same.

And that’s in no way a profit if you sell that property for £120k on those terms.

@FatherJackHackettsUnderpantsHamper dodnt say it didn’t count for anything. Said it didn’t count in terms of a profit

But nobody has ever said that SH is dead money. When people talk about that they're always referring to private rents. And not a single person on this page has disagreed with that.

In fact, with many SH contracts still have RTB it becomes an even more attractive proposition. Have your cake and stuff your face with it too!

@gotomomo @ChipAndMiss and @SisterMichaelsHabit

this is 20 years ago so I am not talking about current curriculum. But my son once came home and said Miss X who teaches us maths said there are two types of people , those who understand compound interest and those who don't. DFIL who took out a lifetime mortgage did not understand compound interest.

I am not criticising anyone who did not understand it but thank you to the posters above - it is a thing I think people need to learn & you have made me smile. I am thankful to that teacher - it was not on the curriculum but she told them what it was and explained it.

The thing is even in the current curriculum it's there as part of ratios and proportions. But it doesn't explicitly state that it's how mortgages work. Many people don't make the link.

They don't even have to just Google 'how is mortgage interest calculated' and it explains in plain English you can work it out without even knowing the term 'compound interest'.

Aye you're screwed whether you take a mortgage or pay rent, but at least after you pay off the mortgage, you'll have an asset at the end. If you rent, you're just paying off your landlord's mortgage, and you'll still have to find rent money during your retirement.

@ImADevYo

But what a useful thing for young people to learn. My son learned it in Maths at junior school & it may have been hidden but lovely teacher just told them - this is why this is important.
It may amuse you to know that his biology teacher once said in front of the whole class. "Children - you are all going to die " ( She was trying to explain about lifespans of different mammals ) This would have been great if there had not been a trip round the school with parents who were passing past the classroom.

Agree with everything @SantaBarbaraMonica said, plus consider the generational wealth you pass on through inheritance. You won't have acquired that asset/be able to pass it on if you've rented all your life.

Of course social housing is a great option financially, but it's not available to the vast majority of us, so the choice is private renting or buying.

End of the day, none of it matters

You could rent forever and be scrimping in retirement. Or you could win the lottery at 70. Or need to go into a care home when your pension runs out and you’re in your 80s. The government might have introduced a new scheme by then… or anything

You could buy and live happily ever after and gain loads of equity, meaning you have lots of money for nice things and a comfy retirement. Or you could find yourself redundant or disabled and unable to work, struggling to meet the repayments, your house might even be repossessed. You could fall into negative equity and be stuck there. You might randomly need to replace the boiler when you’re on the unpaid part of maternity leave, leaving you in debt. You might divorce and remarry someone who owns a house outright.

So many variables and not a one size fits all. We are renting for now because having a mortgage would be £700 more a month at the moment which we could stretch to afford but it would leave no disposable income for anything fun, and make any maternity leave we hopefully have in the future really tight financially. I don’t want to live that way when we have a young family, cos there’s more to life. Also privileged to have a housing association house which is 2 bed and in a lovely area, so there is that. You just have to weigh it up and accept your choice

Yes crazy, you often pay back around double what you borrow. It may only be 6% but over 35 years.

better if you can reduce your term from 35 years down to the lowest you can afford.

... which really should be taught in schools, imo, so that people understand how it works before they get into debt.

i agree with a lot of the previous posts but just to add it’s not quite as bad as it sounds as paying £500k over 35 years is nowhere near paying £500k immediately. Google net present value if you like. £500k in 35 years May be the equivalent of £400k now (I haven’t worked this out but just for example - depends on inflation etc). Unlike the “very clever” renter who has beat the system you have something at the end of it and hopefully it will have increased in value also over 35 years. Good luck.

That's good to know.

I've had no end of difficulty explaining it to my clients, but very few of them are under 30, so maybe it wasn't taught when they were at school.

Unfortunately it’s because of the length of the term. But after you’ve had it a while you could up the payments everytime you get a pay rise etc.

@Mortgageh Are you paying alone or is it a joint 'adventure' with your partner? Most people who responded say 'we', 'our', etc., so they are married and share the burden with a partner. It's very different from having to pay for it yourself.

This is a very good explanation but woooow it’s giving me a sicky feeling 😂

I remember being shocked the first year we received our annual statement at how little we’d paid off!

Is this stuff not taught in schools anymore? Compound vs simple interest? It's pretty basic maths. How/why do people sign up for stuff if they don't understand what they are signing up for?

I have a friend who years ago was advised to pay every pay rise, where possible, off the mortgage so carry on living on the pre-increase income. She paid her mortgage off incredibly early and didn’t pay a fraction of the interest. She was a single parent so wasn’t loaded by any means but managed and still had an enjoyable life with holidays etc. Takes willpower but it can be done

LOL

It’s normal that when you buy something over 25 or 35 years that you end up paying double in total. It was in the 80s when I first bought a house.

What’s not normal is the stupid asking prices down south nowadays.

In the late 80s in Yorkshire the average starter home (2 bed victorian terrace) was 3.5x joint salaries. Since then house prices in Yorkshire have quadrupled but so have salaries so affordability is much the same as it ever was. e.g. a staff nurse salary was around £7k now it’s £28k.

It’s different down south though, bonkers prices.