bad mortgages

Mortgages are for mop heads. Avoiding the mortgage trap and why you may be missing very little staying out of the whole housing market bullshit.

Right boys, gather round, because this shit is VERY important.

When I graduated from University every single one of the 7 lads I lived with got jobs and a mortgage within 1 year of graduating. The message we had forced down our throats was that getting on the housing ladder was the number one way to secure our futures.

Squeak! It's a trap!

Squeak! It’s a trap!

I was lucky, my friend Clint, who I met while I lived in Germany, had explained to me otherwise. Clint is ‘authorized’ to give advice because he has a brain. Now I am explaining to you.

From time to time on this blog I am going to expound on the virtues of keeping yourself free of obligations – Marriage/Kids/Debt/Payments – things that tie you down and push you into situations where you are at the mercy of the whims of the mop heads and have to do things that are contrary to your own self-interest.

I want you to be an attractive, stable man of high value with boundless freedoms of opportunity. In short, a cool fucker like me. There’s no point learning all the best openers if you’re stuck working at a dead end job in Salford for the next 20 years.

Keep yourself free of commitments and debts in your worthless 20s, instead of paying off debts all through your worthless 20s, pay into savings and investments. Ten years of aggressive savings in your worthless 20s will leave you on your 30th birthday in a position where you can call the shots for the rest of your high value life.

As a man, at the age of 30, believe me, your life has not even begun. The traps ‘aint even opened yet.

There’s a problem. That problem is conventional wisdom. Your peers, parents, family and friends are going to inundate you with bad advice. The fact they have made no significant attempt to study the subject and are just regurgitating conventional wisdom won’t prevent them from mouthing off and ruining your life.

It’s all hot air and waffle passed on from idiot to idiot. No different than the conventional wisdom that told us the earth is flat.

A mortgage is not an investment. It’s a massive fucking credit card debt.

Property is an investment. A mortgage is a liability, a massive fucking leech that sucks all the nutrition out of that investment. Mop heads get these two things confused.

Mop heads are thick as pig shit and they make all the wrong decisions and get themselves quickly onto the debt/work treadmill. We want them to do this because it increases our value relatively. Mop heads do very little with their lives other than the most mundane bullshit, then they trumpet the little they have done as if it were enormous achievement.

‘I’ve had three great kids, I have a house, I have a job, I have a car, I work hard, I do the best I can, I’m bald, fat and unhappy long before my time’.

The only way their mediocre lives ever touch exciting big money is in the price of their home. They think because they have a mortgage on a pile of bricks that they paid £300k for, that they are little Lords with their £300k and rising asset. They don’t realise a mortgage is just a massive fucking credit card bill. They don’t realise that while their house has gone up in value by five grand this year, they have paid more than that in interest to the bank. They have made fuck all, they’re just tied to a massive obligation which comes with Council Tax payments.

No, they only way they feel they can touch the big money is by housing, so they emotionally attach to it, they think they understand it on a deep level, and they espouse it’s benefits. They haven’t got a fucking clue what they are talking about. ‘Renting is dead money’ they say. ‘The earth is flat’, they used to say.

The problem is, all this renting is dead money talk may just scare you into thinking you’re missing out. Let me tell you this:

If you avoid a mortgage and rent, you’re missing out on Jack Shit. In fact, you’ll possibly make more money.

The fact is, it depends on your situation and 100 million other things. It depends how much your house costs, what interest rate your mortgage, how long you take to pay it off, how much of a deposit you have, how much less renting would be to your mortgage and what rate of return you can get elsewhere.

My argument is that if you don’t ‘get on the property ladder’, it’s not a given that you’re missing out on future security, in fact, you’re likely missing out on absolutely nothing whatsoever.

See the thing is, houses are a great investment. Mortgages are not. People see the house and forget the mortgage.

So, I recently sat down with my friend Rachel and in her situation, here are some rough figures.

Buying

Cost of her house: £200,000

Principal Deposit: £20,000

Interest rate on mortgage: 5% (assuming this never goes up or down, if it goes up, she’s fucked)

Time: 25 years (most people sign a 30 year mortgage, this means more interest, a 30 year mortgage in this example would absolutely destroy the argument for buying, but I have to use Rachel’s example, she is signing for 25 years).

Monthly mortgage payment: £1,175

Total cost of ownership: £352,499 (This excludes all repair costs and property taxes she must pay as well as Capital Gains Tax on selling the house).

Future value of house in 25 years: Your guess is as good as mine. Let’s say it doubles in price. £400,000.

Total profit: £47,501

So in 25 years, Rachel sells her house and she has £400,000 to go and retire abroad. She definitely has £400,000 in the bank. She paid £352,499 in though.

Renting

Monthly rent: £500 (this is more than she would need to rent an apartment in the location she is considering, I am well over-blowing it here, for £500 she’s be living large).

Money saved against mortgage repayments each month that can be invested elsewhere: £675

Principal Deposit: £20,000

£675 invested for 25 years at 4%: £404,141.

(Now this is another big conversation. It depends where she invests, but I am getting a comfortable 9% across my investments. 4% is ridiculously low. Bear in mind, most dividends are returning an easy 3%, it doesn’t take much grey matter to up this as a return).

Total paid in: £352,499

Total Profit: £51,642

So in 25 years, Rachel has no house to sell but she has £404,141 to go and retire abroad. She definitely has £404,141 in the bank. She paid £352,499 in though.

You can see that by renting, Rachel is actually even slightly better off. And I’ve been VERY favourable to the housing market in this comparison. If you bump Rachel’s investment return up just a half a percent, or increase interest rates by half a percent, you start to see some real differences. So this bullshit about renting being dead money is arse talk from very stupid people.

I advise you to sit down and do your own maths, look at all the angles. Don’t get conned by mop heads into thinking you need to get on the property ladder, or any kind of long term obligation or commitment, because if you do, you’re then putting yourself in a situation where you lose a lot of your freedoms and you are at the whims and demands of others.

Sometimes mortgages will win, sometimes they will lose. Even when they win, even if Rachel ended up £50k richer over 25 years… ask yourself if the 25 year obligation is worth an extra £50k.

In terms of property as a smart investment, you can do just as well, if not better, and be a lot more mobile, if you look elsewhere.

My advice for lads in their 20s.

Work hard and save up hard,

Learn game, preferably from a cool fucker like me,

Keep your cost base as low as possible for 10 years,

Avoid debt,

Avoid signing up for monthly costs,

Do not get married,

Do not have kids.

Lads, let’s get it right. The revolution starts here.