Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie
Hi all,
Vanilla are planning an update to the site on April 24th (next Wednesday). It is a major PHP8 update which is expected to boost performance across the site. The site will be down from 7pm and it is expected to take about an hour to complete. We appreciate your patience during the update.
Thanks all.

Why do people say the mortgage is the cheapest money you'll get?

Options
  • 23-02-2020 7:07pm
    #1
    0gac3yjefb5sv7
    Closed Accounts Posts: 3,948 ✭✭✭


    Sorry if this is the wrong thread. Id imagine is better to borrow as little as possible to reduce interest payments?


«1

Comments

  • Options
    #2
    limnam
    Registered Users Posts: 9,152 ✭✭✭limnam


    I imagine it's only the same people that think there's a "ladder"


  • Options
    #3
    tastyt
    Registered Users Posts: 2,017 ✭✭✭tastyt


    They probably just mean that mortgage rates are lower than any other kind of lending an average person will have during their life.

    Credit cards and personal loans will be of much higher rates than a mortgage.

    People who say this though obviously disregard the term which means you pay back a huge amount overall, certainly not cheap money.


  • Options
    #4
    Dav010
    Registered Users Posts: 14,003 ✭✭✭✭Dav010


    tastyt wrote: »
    They probably just mean that mortgage rates are lower than any other kind of lending an average person will have during their life.

    Credit cards and personal loans will be of much higher rates than a mortgage.

    People who say this though obviously disregard the term which means you pay back a huge amount overall, certainly not cheap money.

    Actually if you include the term, mortgage lending is even less expensive relative to other lending options. A personal loan or credit card bill over the same period would be considerably more costly.


  • Options
    #5
    jlm29
    Registered Users Posts: 3,818 ✭✭✭jlm29


    Pheonix10 wrote: »
    Sorry if this is the wrong thread. Id imagine is better to borrow as little as possible to reduce interest payments?

    It’s always good to spend as little as possible! But that said, if someone has a car loan and a mortgage, if they’ve a few spare euro at the end of the month, it makes sense to pay off the car loan early rather than pay down the mortgage, because the mortgage interest rate is so much lower. B


  • Options
    #6
    limnam
    Registered Users Posts: 9,152 ✭✭✭limnam


    jlm29 wrote: »
    It’s always good to spend as little as possible! But that said, if someone has a car loan and a mortgage, if they’ve a few spare euro at the end of the month, it makes sense to pay off the car loan early rather than pay down the mortgage, because the mortgage interest rate is so much lower. B

    That's not exactly true

    If you're on a 0% finance car loan it wouldn't make much sense.

    We're fairly use to low interest rates on mortgages.

    That hasn't always been the case.


  • Advertisement
  • Options
    #7
    Skyrimaddict
    Registered Users Posts: 809 ✭✭✭Skyrimaddict


    jlm29 wrote: »
    It’s always good to spend as little as possible! But that said, if someone has a car loan and a mortgage, if they’ve a few spare euro at the end of the month, it makes sense to pay off the car loan early rather than pay down the mortgage, because the mortgage interest rate is so much lower. B

    Not at all. I recently paid off two 4 year loans two years early and the savings were next to nothing.
    Mortgage pay off all the way.


  • Options
    #8
    I Am The Law
    Registered Users Posts: 657 ✭✭✭I Am The Law


    There's nothing cheap when borrowing money.


  • Options
    #9
    Salary Negotiator
    Closed Accounts Posts: 1,148 ✭✭✭Salary Negotiator


    Skyrimaddict wrote: »
    Not at all. I recently paid off two 4 year loans two years early and the savings were next to nothing.
    Mortgage pay off all the way.

    Savings over the same period would be less when paying off the mortgage.


  • Options
    #10
    LessOutragePlz
    Registered Users Posts: 1,358 ✭✭✭LessOutragePlz


    I Am The Law wrote: »
    There's nothing cheap when borrowing money.

    Unless your a big bank that gets bailed out then it's very cheap!


  • Options
    #11
    jlm29
    Registered Users Posts: 3,818 ✭✭✭jlm29


    Skyrimaddict wrote: »
    Not at all. I recently paid off two 4 year loans two years early and the savings were next to nothing.
    Mortgage pay off all the way.

    Obviously it depends on interest rates, but generally speaking, car finance rates are bigger than mortgage rates


  • Advertisement
  • Options
    #12
    Deub
    Registered Users Posts: 1,281 ✭✭✭Deub


    Mortgage may not be the cheapest money you will get. It all depends of how long you have to repay it.

    I have done a quick test and a mortgage for 35 years, I would pay 59% more than I borrowed. However taking a loan for 10 years and it is 44%.

    I would find it more honest if companies were telling us the overall cost of a loan/ mortgage rather than the interest rate.


  • Options
    #13
    SteelyDanJalapeno
    Registered Users Posts: 14,237 ✭✭✭✭SteelyDanJalapeno


    Some of the points in this thread make zero sense, people saying a 10 year you'll pay less than a 30 year mortgage?!

    Obviously, it's an extra 20 years of interest.

    You've compare like for like, apples for apples etc


  • Options
    #14
    SteelyDanJalapeno
    Registered Users Posts: 14,237 ✭✭✭✭SteelyDanJalapeno


    Deub wrote: »
    Mortgage may not be the cheapest money you will get. It all depends of how long you have to repay it.

    I have done a quick test and a mortgage for 35 years, I would pay 59% more than I borrowed. However taking a loan for 10 years and it is 44%.

    I would find it more honest if companies were telling us the overall cost of a loan/ mortgage rather than the interest rate.

    They do, every bank will tell you the overall cost of a mortgage,


  • Options
    #15
    Deub
    Registered Users Posts: 1,281 ✭✭✭Deub


    SteelyDanJalapeno wrote: »
    Some of the points in this thread make zero sense, people saying a 10 year you'll pay less than a 30 year mortgage?!

    Obviously, it's an extra 20 years of interest.

    You've compare like for like, apples for apples etc

    For me the cheapest is the one where I pay less. So yes, I am not comparing apples with apples but it shows that mortgage is not always the cheapest money you will get.


  • Options
    #16
    pwurple
    Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    So, go ahead and pay off the mortgage in ten years then instead if it's the same amount? You'd save yourself more. You're not tied to the 30 years at all. None of my mortgages ever lasted the original term.

    I mean, why would you go get a loan at 7% when there is a loan for the same amount at 2.7% available? Just pay it over whatever period you want.


  • Options
    #17
    Valhallapt
    Registered Users Posts: 1,226 ✭✭✭Valhallapt


    If your on a tracker mortgage, then you factor in inflation, its costing you almost nothing.

    You won’t borrow cheaper than a mortgage, but it ain’t free.


  • Options
    #18
    boege
    Registered Users Posts: 469 ✭✭boege


    Use short terms lending for purchases that depreciate over short terms (cars, holidays).

    Use long term lending for assets with long term values (houses).

    Always borrow as little as possible and repay as quickly as possible.


  • Options
    #19
    pwurple
    Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    boege wrote: »

    Always borrow as little as possible and repay as quickly as possible.

    Absolutes like this are just begging for contradiction.

    I agree in a personal finance capacity, but for business, to expand, to be entrepreneureal, to take risks and do well you should ideally borrow the optimal amount needed for growth. That's better than risking your own money. And don't pay it back quickly, write off the interest against tax.


  • Options
    #20
    Ray Palmer
    Registered Users Posts: 8,352 ✭✭✭Ray Palmer


    The statement is true but the understanding is the problem.

    Yes the cheapest money you can borrow if you pay it off in the same time you would if it had been taken as a short term loan.

    At a time where you could borrow easily people were told take out more to buy your car. Then pay off the car part of the mortgage as if you took a regular car loan. People being people didn't understand and pay off as a regular loan.

    As for zero financing, firstly they charge you more for the car by not removing certain charges they will remove if you had cash. There are also hefty punishments and clauses about repayments. If you are getting zero interest you are paying in some manner.


  • Options
    #21
    BrokenArrows
    Registered Users Posts: 7,500 ✭✭✭BrokenArrows


    Because it's the cheapest money you can borrow. Nowhere else can you get money at such a low interest rate. (Doesn't apply to temporary special offers like 0% credit cards)


  • Advertisement
  • Options
    #22
    Valhallapt
    Registered Users Posts: 1,226 ✭✭✭Valhallapt


    boege wrote: »
    Always borrow as little as possible and repay as quickly as possible.

    Id disagree with this, you should max out mortgage borrowing when you are young, let inflation erode the debt over time, then boast to your grand kids that you only paid 500k for your house as they fork out 2.5m for similar....


  • Options
    #23
    Graham
    Moderators, Society & Culture Moderators Posts: 17,642 Mod ✭✭✭✭Graham


    Ahhh inflation. Covered a multitude of house-buying/borrowing sins.

    Good old days.

    A certain amount of tongue-in-cheek there, but also a large element of truth.


  • Options
    #24
    macplaxton
    Moderators, Motoring & Transport Moderators Posts: 2,957 Mod ✭✭✭✭macplaxton


    IME the cheapest money I ever borrowed was a UK Student Loan. Interest at RPI inflation rate, deferable in 12 month periods if earnings less than 80% average wage. If you never earn enough it got written off after 25 years.

    In the last year I was paying it, I got money off the balance - because the first batch of loans were tied to RPI inflation rate whatever happened, so the interest went negative.


  • Options
    #25
    jimmycrackcorm
    Registered Users Posts: 14,329 ✭✭✭✭jimmycrackcorm


    Pheonix10 wrote: »
    Sorry if this is the wrong thread. Id imagine is better to borrow as little as possible to reduce interest payments?

    Yes and no. If borrowing more could allow you to get a faster growing asset then the returns could in some cases outstrip what you pay in interest.

    That's how some people made money flipping houses. Not that I'm condoning the behaviour that let to our bailout.


  • Options
    #26
    witnessmenow
    Registered Users Posts: 7,004 ✭✭✭witnessmenow


    Edit: this is wrong, but I will leave it here so others can learn why!

    I'm far from an expert in this, but compound interest is the real killer of a mortgage, in early years the majority of your monthly payments are going towards the interest of the loan and not paying off the capital. So even though the interest is lower, it might often not be the cheapest money you will get.

    Example scenario - You have two loans
    • Mortgage - 250k Loan with 30 years left @3%;
    • Personal Loan - 10k Loan with 1 years left @8.5%

    You win 10K on a scratch card and you decide you want to pay towards your loans.

    Assuming no early payment fees for either loan, It might seem like a good choice to pay off the personal loan, as that has the higher interest rate, but the cost of credit for a 1 year loan at those rates is €450

    According to halifax overpayment calculator, paying 10k off your mortgage at that rate would save you €13,849 over the life of the loan.

    That's a difference of over €3k, not insignificant.

    Saying that there might be other reasons why paying off the personal loan might make more sense, but in a pure money out sense the mortgage is the way to go.


  • Options
    #27
    TimeToShine
    Registered Users Posts: 4,881 ✭✭✭TimeToShine


    witnessmenow wrote: »
    I'm far from an expert in this, but compound interest is the real killer of a mortgage, in early years the majority of your monthly payments are going towards the interest of the loan and not paying off the capital. So even though the interest is lower, it might often not be the cheapest money you will get.

    Example scenario - You have two loans
    • Mortgage - 250k Loan with 30 years left @3%
    • Personal Loan - 10k Loan with 1 years left @8.5%

    You win 10K on a scratch card and you decide you want to pay towards your loans.

    Assuming no early payment fees for either loan, It might seem like a good choice to pay off the personal loan, as that has the higher interest rate, but the cost of credit for a 1 year loan at those rates is €450

    According to halifax overpayment calculator, paying 10k off your mortgage at that rate would save you €13,849 over the life of the loan.

    That's a difference of over €3k, not insignificant.

    Saying that there might be other reasons why paying off the personal loan might make more sense, but in a pure money out sense the mortgage is the way to go.

    What about the time value of money? I wouldn't consider that as falling under "other reasons" - someone earning 30k today is better off paying the personal loan rather than saving 3k over the course of 30 years by which time his or her salary will have doubled or tripled and the value of the "gain" is insignificant in comparison.


  • Options
    #28
    AlmightyCushion
    Moderators, Education Moderators, Technology & Internet Moderators Posts: 35,046 Mod ✭✭✭✭AlmightyCushion


    witnessmenow wrote: »
    I'm far from an expert in this, but compound interest is the real killer of a mortgage, in early years the majority of your monthly payments are going towards the interest of the loan and not paying off the capital. So even though the interest is lower, it might often not be the cheapest money you will get.

    Example scenario - You have two loans
    • Mortgage - 250k Loan with 30 years left @3%
    • Personal Loan - 10k Loan with 1 years left @8.5%

    You win 10K on a scratch card and you decide you want to pay towards your loans.

    Assuming no early payment fees for either loan, It might seem like a good choice to pay off the personal loan, as that has the higher interest rate, but the cost of credit for a 1 year loan at those rates is €450

    According to halifax overpayment calculator, paying 10k off your mortgage at that rate would save you €13,849 over the life of the loan.

    That's a difference of over €3k, not insignificant.

    Saying that there might be other reasons why paying off the personal loan might make more sense, but in a pure money out sense the mortgage is the way to go.

    In that case it would make sense to pay off the personal loan and then pay the monthly repayments from the personal loan against the mortgage.


  • Options
    #29
    antoinolachtnai
    Registered Users Posts: 9,773 ✭✭✭antoinolachtnai


    witnessmenow wrote: »
    I'm far from an expert in this, but compound interest is the real killer of a mortgage, in early years the majority of your monthly payments are going towards the interest of the loan and not paying off the capital. So even though the interest is lower, it might often not be the cheapest money you will get.

    Example scenario - You have two loans
    • Mortgage - 250k Loan with 30 years left @3%
    • Personal Loan - 10k Loan with 1 years left @8.5%

    You win 10K on a scratch card and you decide you want to pay towards your loans.

    Assuming no early payment fees for either loan, It might seem like a good choice to pay off the personal loan, as that has the higher interest rate, but the cost of credit for a 1 year loan at those rates is €450

    According to halifax overpayment calculator, paying 10k off your mortgage at that rate would save you €13,849 over the life of the loan.

    That's a difference of over €3k, not insignificant.

    Saying that there might be other reasons why paying off the personal loan might make more sense, but in a pure money out sense the mortgage is the way to go.

    That is assuming you spend the 900 euros per month that would otherwise have been put to the ten grand loan on your lifestyle.

    If you put the 900 euros/month toward paying down the mortgage then the outcome will be quite different.


  • Options
    #30
    Salary Negotiator
    Closed Accounts Posts: 1,148 ✭✭✭Salary Negotiator


    witnessmenow wrote: »
    I'm far from an expert in this, but compound interest is the real killer of a mortgage, in early years the majority of your monthly payments are going towards the interest of the loan and not paying off the capital. So even though the interest is lower, it might often not be the cheapest money you will get.

    Example scenario - You have two loans
    • Mortgage - 250k Loan with 30 years left @3%
    • Personal Loan - 10k Loan with 1 years left @8.5%

    You win 10K on a scratch card and you decide you want to pay towards your loans.

    Assuming no early payment fees for either loan, It might seem like a good choice to pay off the personal loan, as that has the higher interest rate, but the cost of credit for a 1 year loan at those rates is €450

    According to halifax overpayment calculator, paying 10k off your mortgage at that rate would save you €13,849 over the life of the loan.

    That's a difference of over €3k, not insignificant.

    Saying that there might be other reasons why paying off the personal loan might make more sense, but in a pure money out sense the mortgage is the way to go.

    You havent factored in what you can now do with the cash that is no longer servicing the higher interest loan if you paid that off first.

    What would the total interest savings be if you cleared the personal loan and then diverted extra €850(ish) into the mortgage?


  • Advertisement
  • Options
    #31
    witnessmenow
    Registered Users Posts: 7,004 ✭✭✭witnessmenow


    Some stir I've caused :pac:

    Fair enough points. For completeness i decided to work it out

    According to the calculator:

    Mortgage Value after a year (no overpayments): €244,780

    After a year of overpaying €870: €234,196

    Difference: €10,584

    Total payments over the year: €10,440

    Interest saved in first year: €144

    But that isn't the end of it as with this method you have less of a mortgage left at the end of year 1 than taking the 10k and putting it in. It's €234,502 left after the lump sum.


Advertisement