The price you pay V the purchase price

D3PO

I just thought there should be a thread on this. I do find it strange that all the talk on here is about house prices falling.

I think its a fair appraisal to say 95% plus of FTB's right now are only looking at house prices from what the purchase price is with the view of getting "in at the bottom" and not falling into the negative equity trap.

Clearly thats great but why are people not paying more attention to the actual cost of purchasing the house ?

Prime example a new neighbour moved in last week to a house on our road. I got talking to him outside and he proudly mentioned how he negotiated down the asking price which is great. The chit chat continued and he asked me how much I paid for mine. When I told him I had paid 75k more back in 2005 than he paid today he was beaming absolutly beaming. He was chuffed with himself

However reality soon kicked in with him that purchase price is only one variable to consider when I asked him about his mortgage term and interest rate. Long story short Ive got a tracker and they dont exist any more. We both have the same mortgage term & his mortgage repayments are €20 per month more than mine.

So yes great he paid 75k less but in real terms he will pay more than me for his house especially when banks increase their margins which is without a doubt going to happen.(assuming neither of us reduce our terms)

I just find it interesting that there is a lack of media commentary on this very subject, and it just shows that many FTB's now are no more financially savvy than those that got caught up in the bubble.

Zamboni

D3PO wrote: »

I just find it interesting that there is a lack of media commentary on this very subject, and it jsut shows that FTB's now are no more financially savvy than those that got caught up in the bubble.

Some of us FTB's are still sitting on the sidelines weighing up all the variables

It is an interesting point though. People only tend to view one or two of the multiple possible factors when buying a house.

D3PO

Zamboni wrote: »

Some of use FTB's are still sitting on the sidelines weighing up all the variables

It is an interesting point though. People only tend to view one or two of the multiple possible factors when buying a house.

Original most edited "Many" FTB's not all of em

Zamboni

Other FTB's I know are only looking at a house price, location and now they are also looking at affordability (at last).
They don't evaluate which is the best interest option for them, rather they select the one that will provide the 'cheapest' monthly repayment now.
But none seem to look at the potential total cost of credit over the full term of a mortgage.

D3PO

Exactly this is my point. Affordablity is great, buying at the right price too, but if you dont back this up by ensuring you look at the other options your shooting yourself in the foot.

I dont seem to see many purchasers considering the interest rates, considering the impact financially of not purchasing before TRS is abolished, not considering the extra cost of taking "payment holidays" when just purchasing, going interest only, chucking an extra 5 years on the term etc etc

Its crazy there is just this massive tunnel vision focused on the "house price" :eek:

gurramok

Yes, they don't do the research into the biggest financial transaction of their lives. Alot just jump right in without thinking its a 20-35yr commitment of debt.

I as a potential FTB don't see value for money out there yet and thats why i'm waiting assuming if i ever be bothered to buy a gaff in this country.

susana

Zamboni wrote: »

Other FTB's I know are only looking at a house price, location and now they are also looking at affordability (at last).
They don't evaluate which is the best interest option for them, rather they select the one that will provide the 'cheapest' monthly repayment now.
But none seem to look at the potential total cost of credit over the full term of a mortgage.

You are totally right - I'm a FTB trying to begin to understand all of these things - any tips on where to go to start working it out? Thanks

DJDC

What do you expect in a country where only 20% are capable of studying a watered down honours maths course. The vast majority of people have no concept of Net Present Value, interest rate sensitivities etc. The stupidity of the masses is what keeps the finance industry alive.

Jesh1

Best line ever!!!

DJDC wrote: »

The stupidity of the masses is what keeps the finance industry alive.

I'm buying a property in the next few days and willing to walk away from the banks if i dont get decent mortgage package.....i dont fancy been shafted for the next 35yrs!

ZYX

Zamboni wrote: »

Other FTB's I know are only looking at a house price, location and now they are also looking at affordability (at last).
They don't evaluate which is the best interest option for them, rather they select the one that will provide the 'cheapest' monthly repayment now.
But none seem to look at the potential total cost of credit over the full term of a mortgage.

Obviously though, simply looking at total cost over life time of mortgage is not as cut and dried as it seems. For example banks will tell you paying say 200 a month extra off your mortgage will save you X amount off your mortgage over its lifetime. They ignore the fact that this 200 invested elsewhere could earn more. It is pretty complicated to work out all the variables. Will you really save more having a mortgage over 20 years than 25 years? Probably but not definitely. This is why things like "off-set mortgages" are usually a bad idea.

Jesh1

ZYX wrote: »

Will you really save more having a mortgage over 20 years than 25 years? Probably but not definitely. This is why things like "off-set mortgages" are usually a bad idea.

With saving's earning minimal interest i would say the safest option is to pay off yer mortgage.......unless your a savvy investor. I would be interested if anyone could come with figures to prove me wrong:cool:

ZYX

Jesh1 wrote: »

With saving's earning minimal interest i would say the safest option is to pay off yer mortgage.......unless your a savvy investor. I would be interested if anyone could come with figures to prove me wrong:cool:

I am just making the point that it is more complicated and there are a lot of things to consider. For instance at present I have a tracker and so would earn more money putting money on deposit than over paying mortgage. Most long term investments over 20-30 years would expect to out-perform mortgage interest rates although it is a risk.

An other example is, if you need to borrow money in the future. So for example if you pay €250 extra a month into your mortgage that means after 5 years you will have paid off €15,000 off your mortgage. However say in 5 years time you decide to borrow €15,000 for a new car or home improvements or whatever. You now have to borrow the money at €10%+. If you had put the money in a savings account even if it earned less interest you would have avoided the need to borrow.

As I said there are a lot of things to consider. A mortgage is the cheapest loan you will ever get. Paying it off early may suit some but not necessarily everyone. People should consider their options carefully, try and consider options for the future etc

jackal

So what do you suggest, that he goes back in time to when there were tracker mortgages available?

Also consider that you cannot move or re-mortgage at the moment without losing the tracker.

Always a cloud to be found above the silver lining ;p