Is a Mortgage Really Worth It?
Yes and no. It depends on so many different factors, such as: home purchase vs investment, commercial vs domestic, location, mortgage rates, taxes and so many more…, but whilst any large financial commitment is a risk, the right property purchase could substantially increase your net worth & pay you dividends (literally) in years to come.
It can of course swing the other way where a bad purchase or a change in circumstances beyond your control could leave you financially devastated, but let’s not dwell on that too long!
Most people do however land somewhere in the middle of these too extremes, usually on the up side, although this depends heavily on how long they own their property for, it’s condition and where it is.
Advantages of buying a home
Being a homeowner has some distinct advantages, which I have neatly bundled into 3 pots as follows:
financial advantages of Home Ownership
- Ability to build credit: Paying your mortgage on time can help you build credit and improve your credit score over time
- Ability to build wealth: Owning a home can provide the opportunity to build wealth over time, as you pay down your mortgage and build equity in your home
- Control over expenses: As a homeowner, you have control over your expenses, and can make changes to your home to reduce your utility bills and other costs
- Potential for rental income: If you have extra space, you may be able to rent it out and generate additional income
- Potential for home equity loans: Homeowners may be able to take out home equity loans or lines of credit, which can provide access to additional funds for things like home improvements or emergencies
- Potential for tax benefits: Homeowners may be eligible for tax deductions on mortgage interest payments and property taxes
- Protection against inflation: Owning a home can provide protection against inflation, as the value of your home may increase over time, while your mortgage payment remains fixed
Environmental Advantages of Home Ownership
- Community: Owning a home can provide a sense of community and belonging, as you become more invested in your neighborhood and local area
- More space: Homeownership can provide more space than renting, as you can choose a home that meets your specific needs and preferences
- Potential for appreciation: Real estate values tend to appreciate over time, which means that owning a home can be a good long-term investment
- Potential for home office: Owning a home can provide the opportunity to create a home office or workspace, which can be beneficial for those who work from home
Security & Control
- More control over living situation: Owning a home provides more control over your living situation, as you have the ability to make changes to your home and property to suit your needs and preferences
- Ability to make long-term plans: Owning a home provides the ability to make long-term plans, as you have control over your living situation and can make changes to suit your needs and preferences over time
- Ability to pass down to future generations: Owning a home can provide a legacy for future generations, as you can pass down your home to your children or other family members
- Greater privacy: As a homeowner, you have greater privacy than you would in a rental property, as you don’t have to worry about landlords or property managers entering your home without notice
- Greater sense of stability for children: Owning a home can provide a greater sense of stability for children, as they grow up in a stable living situation and may be able to inherit the home in the future
- Stability in retirement: Owning a home can provide stability in retirement, as you won’t have to worry about rent increases or being forced to move
Disadvantages of Buying a Home
- Interest payments: One of the biggest disadvantages of taking out a mortgage is the fact that you have to pay interest. Over the life of the loan, you will end up paying a significant amount of money in interest.
- Risk of foreclosure: If you are unable to make your mortgage payments, your lender may foreclose on your home, which means you could lose your home.
- Long-term commitment: A mortgage is a long-term commitment, and you will be responsible for making payments for 15, 20, or even 30 years.
- Closing costs: When you take out a mortgage, you will be responsible for paying closing costs, which can be a significant expense.
- Property taxes: As a homeowner, you will be responsible for paying property taxes, (stamp duty in the UK) which can be a significant expense.
- Maintenance and repairs: As a homeowner, you will be responsible for maintaining and repairing your home, which can be costly.
In terms of differences between the UK and US, there are a few key differences:
- Interest rates: Interest rates tend to be higher in the UK than in the US, which means that UK homeowners may end up paying more in interest over the life of their mortgage.
- Down payments: In the UK, it is common for homebuyers to put down a larger down payment than in the US, which can make it more difficult for some people to afford a home.
- Foreclosure laws: Foreclosure laws differ between the UK and US, with the UK having more protections for homeowners.
- Property taxes: Property taxes tend to be higher in the US than in the UK, which means that US homeowners may end up paying more in taxes over the full term.
- Closing costs: Closing costs tend to be higher in the US than in the UK, which can be a significant expense for homebuyers.
Getting a Home Equity Loan (Second Mortgage in the UK)
Getting this type of loan is of course very different depending on where you live, but you are basically borrowing against the equity in your property and offering up you asset as collateral in the process.
Equity is the difference between the current value of your home and the amount you still owe on your mortgage.
To get a secured loan like this, you’ll typically need to have a certain amount of equity in your home, a good credit score, and a steady income. You’ll need to apply for the loan with a lender, who will evaluate your application and determine whether you qualify for the loan.
This process is similar in both the UK and the US. However, there are some differences in the way these loans are structured and regulated in each country. It’s important to do your research and understand the terms and conditions of any loan before you apply.
In the UK, home equity loans are typically referred to as “secured loans” or “second mortgages.” These loans are often used for home improvements or debt consolidation, and they are usually structured as fixed-term loans with a set repayment schedule.
In the US, home equity loans are often also referred to as “second mortgages” or “home equity lines of credit” (HELOCs). HELOCs are more flexible than traditional home equity loans, allowing borrowers to draw on the line of credit as needed over a certain period of time. HELOCs also typically have variable interest rates, which can make them more risky than fixed-rate home equity loans.
What is a Mortgage Anyway?
A mortgage (which means “Death Pledge” in French!) is a loan that you use to buy a property, whether that’s to purchase a home or an investment property, a house, an apartment (a flat if you’re in the UK!) or land.
Essentially it’s just a type of loan that is secured against the land or property that you have taken it out against. The terminology just refers to a secured loan that is specific to land or property and typically runs over 25 years, though this changes depending on your age and country of residence. For more information on this there is a very detailed article by Diffen.com HERE.
As this is basically just a secured loan it does mean that if you do not keep up the repayments, the title (i.e. ownership) of the land or property moves to the bank through reposition. (heck out my post HERE on some of the things you might want to consider before you do…
To help with your decision, I have done a short case study on types of mortgages. I’ve used really simple numbers so that you can see the outcomes of different types very easily.
Is Buying a House a Good Investment in 2023?
Buying a house in 2023 can be a good investment, but the market conditions will vary between various countries
According to Forbes, a majority of people consider buying a house a good investment (source: Forbes Advisor). However, the National Association of Realtors predicts that median existing home prices will rise just 0.3% in 2023 in the US (source: NerdWallet).
On the other hand, the UK housing market may have more inventory in 2023, which can help tamp down price increases and give buyers more buying power (source: Houwzer). Therefore, it may be a good idea to compare the investment opportunity for buying residential houses in the UK to buying houses in the US based on the specific market conditions in each country.
According to a report by The Guardian, the UK housing market in 2023 is expected to be more stable and less volatile than it has been in recent years (source: The Guardian).
However, it is important to note that the UK housing market can be affected by factors such as Brexit, interest rates, and economic conditions.
In the US, the housing market is expected to continue to be strong in 2023, but there may be some headwinds due to rising interest rates and a potential slowdown in the economy (source: CNBC).
Overall, it is important to do thorough research and consult with a real estate professional before making any investment decisions in either country.
In summary, while buying a house can be a good investment in 2023, the market conditions for residential houses in the UK and the US may vary.
The UK housing market is expected to be more stable and less volatile than in recent years.
In the US, the housing market is expected to continue to be strong, but rising interest rates and a potential economic slowdown may present some headwinds. It is important to do thorough research and consult with a real estate professional before making any investment decisions in either country.
It’s not all bad though – even if you did happen upon a large sum of cash to buy a house with, you are very likely still much better off with a low interest mortgage and your cash in a higher value investment.
What the best type of mortgage?
It depends on your personal circumstances, your credit rating, your loan to value amount (LTV), your age, the property and a myriad of other things but if you want a REALLY SIMPLE explanation of what it might look like for you, please read on…….
Please forgive me if you find that this post massively over simplified, my intention is to demonstrate that all mortgages are not created equal and even if you know your way around them, looking at them as part of the bigger picture might give you a new perspective.
This is such a massive subject and there are so many books and resources on this subject that it can make your head spin! I have used online calculators to test the scenarios so you can link to these and plug in your own numbers if you want to see exactly how this might impact your specific situation.
In my mini case study HERE, I’ve done my best to give you an overview of what it really means to your finances when you get a mortgage and how you might want to give it a bit more love and attention.
The answer is still both yes and no – don’t put yourself in financial hot water or tie yourself into a job you hate just to get a mortgage, life is precious and if you are just looking to buy a house because that’s what everyone else is doing then you might want to rethink your logic.
You personally might be happier renting, you might like the freedom to move whenever you want to and pass on any repair bills to a landlord and to be honest, there are many arguments that support that way of thinking, especially if you can invest your extra cash in something that will improve your life, your family’s life and your overall health wealth and happiness.
Run your own numbers, this is a long term commitment and whilst you can always sell the house if it gets too much there are a lot of costs involved so make an appointment with a trained professional (or 3) before you make the final choice.