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Housing loan. multiple. I know what you're thinking. Does the author of “Rich People's Problems” have not one but two mortgages? Off to the tower! Yes, it's true. There's a good reason for that.
Although the interest rates were low, it made economic sense if you had enough returns. I have never shied away from realizing that life is not a rehearsal and that sometimes you need to rely on strength to pull yourself out of a personal depression. We are happy to take advantage of market opportunities. Or you can simply push your finances to the limit and live the way you want to live today, not in the future.
If you only owned one home, you wouldn't need a mortgage. And the cost of living will be significantly reduced. But what's the fun in that? Even though inflation is coming under control, rising interest rates are likely to last longer than many expected. How should you prepare for the inevitable financial shock when calculating refinancing?
Like many people my age, I'm rich in assets but low on cash and prone to overspending. I'm always impressed by people who can live within their means and manage their finances so that they always have cash in the bank, even for boiler-sized emergencies. I'm not that person.
Fortunately, the loan I have was fixed early in the interest rate hike. Mortgage loans are relatively low, as they are less than one-fifth of the real estate price. Remember the happy days when just a few percent could get him a 5 or 7 year fixed rate contract? These led to what I define as “good debt” – debt that I can afford to pay back.
Thankfully, these deals have been in place for several years and come at affordable prices. But planning for when it expires starts now. If interest rates drop between now and the time you need to refinance, you may be able to take out another loan.
Of course, you can also sell your assets, own fewer homes, or sell some of your art or some of your tattoos to live a simpler life. But what's the point of buying take-out from Chips if you can't get a nice roll to work with? Or without fancy art decorating the walls, in wild shades of Elephant's Breath or Snugglepuss? do you want to paint?
Repayment mortgages are clearly the most sensible product. However, I have no intention of doing so. Who cares when it takes so much cashflow away from important things that I need to finance, like my staff, my dog, my holidays, my fizzy drinks, my unnecessary luxury purchases in Norfolk on weekends? Do we need to be wise? Not to mention the excessive number of vehicles and the large number of delivery crews. I'm a good cook, but I haven't mastered the art of sushi yet. That is, interest only.
I'm 53 now, but I'll be 55 when I need to rebuild my finances. So is it a wise strategy? I have never been this old and I will never be this young. Should your goal be to pay off your mortgage before you retire?
For previous generations, mortgages were something young people had. It made sense to be frugal and pay it off before retirement. However, I am sensing a change in financial management. For many people, it seems that leaving a large amount of money behind when they die is no longer the goal. Is it selfish? perhaps. But “skiing” – depleting one's children's inheritance – is something previous generations have done calmly as well.
A key part of my plan, once I hang up my headphones and leave my advisory role, is to shrink the city's housing stock to pay off outstanding balances. I'm happy to ride the London housing market for as long as I need to stay, but it's becoming more and more a young people's city and feels alienating for many of us older people, and I'm not looking for a decent restaurant or to go see a show. It's not just useful. Even shopping in the capital has lost its appeal. I like doing high-end shopping during vacation. abroad.
Working out the type of mortgage is one thing. The dilemma of when to fix it is another matter. There is a lot of speculation about interest rates. If I were to refinance now, it would be about 4.5% for a 5-year term, 5.5% for a 10-year term, and 6.5% for a lifetime term.
But I don't subscribe to any of these. That's because most mortgage brokers expect interest rates to drop to 4% or lower. And that was before last week's news about falling inflation. So what's the point in paying over the odds for a fake security? Now I can use a tracker or a discounted floating rate to become a floater waiting for the right time to jump. There will be. And it seems like an obvious choice.
As with all financial decisions, it's not just the cost of debt that matters, but also the opportunity cost. Yes, investing in stocks and bonds can earn you cash. Perhaps in times of low interest rates, that opportunity cost is easier to ignore. Especially if you end up with a larger kitchen, a bathroom you can easily get lost in, and a wine cellar with glass doors and recessed lighting. You will convince yourself that all this adds value to your property.
Unless you have a lot of cash, a mortgage is a smart way to manage your finances. And when the time comes to pay off that mortgage again, I'll probably have to brace myself. But for now? The festive season is upon us, and in January we'll have to soak up the sunshine and pay for it. And who wants to worry about a mortgage when lying on the beach? I'm more worried about what I'll have for lunch.
James Max is a television and radio host and real estate expert. The views expressed are personal. X, Instagram, Thread @maaaaaaaaaaaaaa
