Construction costs are currently skyrocketing

2022-10-22 23:09:42

I did not compare apples to pears verglichen. I simply took the same annuity as an assumption. Sure, you can now increase the rate - but the one who pays a lower rate ceteris paribus could of course also use this for a then higher repayment.

But the same annuity just looks the same. And since a) the bank eventually wants to see its money again and b) after several decades there are also renovations that come and cost money, 22 and 40 years of terms are not equal for the bank. Just like the 1% repayment is not insignificant, with that you won’t get a loan from most banks. You can calculate all sorts of things back and forth, ultimately everything comes to the conclusion that higher interest rates are shitty if you have to finance. It doesn’t matter whether you now need a higher rate or it runs for 40 years and slowly the bank becomes the landlord.

2022-10-22 23:39:55

To evaluate this neutrally, an Excel spreadsheet comparing buying with renting is sufficient. Of course, not all developments can be predicted, but it is a good aid to make the right decision for oneself. I cannot understand statements that customers do not care how long the term lasts, how high the residual debt is, and what the total interest payments are, but only care about the monthly installment.

2022-10-22 23:42:00

Oh man, I'm sorry. I hope the remaining amount isn't that high?

Yes... 18k are still outstanding. The interest rate is fixed for six months at a time. If they have increased it so drastically now, I have to assume it will go even higher.

2022-10-22 23:46:59

...and you will see that the cost of financing for the customer is the installment. THAT is decisive. And not the consideration over the term. That actually interests almost no one.

I have to agree with you, although I myself studied finance, controlling, etc. and also have decades of experience as a banker. I do look at the cumulative interest payments, but the decision is made based on the installment and the opportunities (rent, etc.). Whether I as a homeowner will have paid 50,000, 100,000, or more in interest after 10-20 years is secondary. Because everyone else has to pay just as much at that time as I do. There are hardly any savings opportunities on interest, unless you forgo owning your own house.

2022-10-23 08:31:04

I have to agree with you, although I myself studied finance, controlling, etc. and also have decades of banking experience. I do look at the cumulative interest payments, but the decision is made based on the installment and the opportunities (rent, etc.). Whether as a homeowner I will have paid 50,000, 100,000, or more in interest after 10-20 years is secondary. Because everyone else has to pay just as much at that point as I do. There are hardly any saving possibilities on the interest, unless you give up owning your own house.

Yes, that's right. That's why I still say that buying a house to live in yourself is a luxury and not a financially worthwhile investment.

2022-10-23 09:18:02

not quite - with a 5% annuity (4% interest, 1% repayment) you have a total expense of exactly 604,545.04 euros for a 300k loan by the end.

Let's take 5% annuity again (this time 1% interest, 4% repayment) you only paid 334,854.83 euros in the end. The installment in example 1: 1250 euros. In example 2? Of course exactly 1250 euros.

A nice side effect in 2: you are done compassionately in 22 years, in example 1 after 40! years.

It may be that the mortgage loan sellers among us only focus on the monthly installment and do not clearly explain this to the “uninformed” customer (extension of the term doesn't sound as bad as about 270k more expense), but facts remain facts. This is simple math. That's why my saying is correct: the house must be “worth twice as much” to you, because you effectively pay almost twice as much.

Your saying is only true—and even then only approximately—with an unreasonably low initial repayment of 1%. Otherwise, your example does not work mathematically.

Construction costs are currently skyrocketing

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