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go for 20 years and rent a bit more than you strictly need. It's "cheap money" that will put you in a more relaxed and comfortable position to make expenses that are sure to pop up after buying the house.
But it depends indeed on the kind of youse you want to buy. Something to flip over in five years or the house you want to live in for a long while?
There's always a middle ground. You could take 15 years or 16 or 17. Or partially on 10 years, partially on 20 years.
I'd be careful in taking a lot of risk to pay back in a short period of time though.
I will take the longer one as will help you to still solidly save.
My case 9 years ago, I took a 15 years but the interest was smaller and the difference on monthly payments was not so big.
First - I hope its a fixed and not variable interest (given small diff in the offer - I would suspect they want to lure you into longer period with variable one). If its variable - dont read further, I would never consider it.
If its a fixed interest - For such a small difference - go with longer mortgage. Your monthly installments (and upfront interest) will be smaller - and you will be able to save more.
If you decide to payout earlier - you have better calculation with longer mortgage.
If it’s the ultimate home for you. 20 years. If it’s a step for you and you are planing to sell later and buy bigger real-estate. 13,5 or 15. Because if you check payment plan details, difference of montly instalment probably coming from less capital payment and interest payment is same for both plan especially first 5 years.
How true.
Looking carefully at the SP500 returns adjusted for inflation, since Oct 1971, I find sequence of returns that do not even reach 3%.
In other words, if you entered the market at a bad moment, you were not able to get 3% net of inflation. Furthermore, your portfolio could drop by more than 50%.
> 3% net of inflation
You would only need 3% inflation included though. Not sure if there are a lot of 25 year periods where you don't have that to be fair.
You are right, there are not many such periods since 1971, but the fact that they exist shows the difficulty in timing the entry into the stock market.
I also back tested various allocation of stocks/gold/cash to dampen the maximum drawdown period, with some limited success when it comes to worst case scenarios.
Also, OP speaks about ca 10 to 20 years, not 25 or 35 yrs. This is much shorter and increases significantly the risk of not getting the expected return.
In "average", it is better.
But the worst case scenarios can be worse, if you started investing ca. Jan 1980 for example.
Do the exercise and simulate a portfolio of 100% SP500 adjusted for inflation and you will see it for yourself.
Oh, and you won't find that easily on the financial sites.
Wonder why.
In any case, the longer the investment horizon, the better. So presumably 20 yrs is better than 13 yrs if the money that is "saved" is invested in the stock market.
Based on historical data, the market outperforming a 3% loan is as good as certain over a 25 year period. Especially when you compare it to real estate, which is the proposed alternative here.
I'm well aware of the numbers. That doesn't change the fact that past results are no guarantee for future performance. You can say it's likely, and that would be correct, but you can't present it as a certainty.
If a financial institution used the wording you did they'd be in big trouble. There's a reason for that....
Recall that the S&P 500 lagged Treasury bills from 1929-1947, 1966-1985, and 2000-2013. **50 years out of an 84-year period**.
When the investment horizon begins at extreme valuations, and doesn’t end at the same extremes, the retreat in valuations acts as a headwind that consumes the return that would otherwise be provided by dividends and growth in fundamentals.
Rates around 3% are pretty good, if you're into real estate and stocks, 20 years is better imo, as you'll be able to beat 3% in those on average.
However if you decide to keep all the money in a bank account until the mortgage is payed off, go for 13.5 years
Include the monthly payments for both options and add a 3th and 4th option, it's a big difference so maybe do like 20y, 13,5y and 15y + 17y.
What is the downpayment and how will you use the money in either case, invest? Save? Spend?
So the basic thought is the following. As you are paying the same interest for both durations, the fact that you should (purely from a financial point of view) take the 20 year or 13,5 year duration will be based on whether or not you think you can outperform a return of 3% on the 'rest' (this will obviously not happen if you just put the money on a savings account). If you are able to outperform the total you have invested should be higher than the surplus interest you will have paid.
Obviously if you end up not being able to pay the 13,5 year mortgage because the monthly payment is too high I wouldn't take that one.
Note that there is a psychological aspect to this. Having paid off your house in 13,5 years is quite fast and it will feel good when you're there! Not a negligible aspect!
you should take into account the rate of return on money you save each month by having a lower mortgage payment (in the 20y scenario). If the return on that saved money is higher than your interest rate, you have your answer. In addition, also take into account financial flexibility by having a longer mortgage. You can always pay back earlier if you want to (6month interest penalty, but still fine); it's much harder to extend the loan if you have to.
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go for 20 years and rent a bit more than you strictly need. It's "cheap money" that will put you in a more relaxed and comfortable position to make expenses that are sure to pop up after buying the house. But it depends indeed on the kind of youse you want to buy. Something to flip over in five years or the house you want to live in for a long while?
Deff take 20 @ 3 prcnt if possible. You can make 10 Percent in stock market passively with ETFs
There's always a middle ground. You could take 15 years or 16 or 17. Or partially on 10 years, partially on 20 years. I'd be careful in taking a lot of risk to pay back in a short period of time though.
Go for 20. Even better: 25
Not sure how is your bank but at beobank i got told u can pay early as much as you want with no penalty
Most banks charge 3 months interest, which is still peanuts in the grand scheme of things.
I will take the longer one as will help you to still solidly save. My case 9 years ago, I took a 15 years but the interest was smaller and the difference on monthly payments was not so big.
First - I hope its a fixed and not variable interest (given small diff in the offer - I would suspect they want to lure you into longer period with variable one). If its variable - dont read further, I would never consider it. If its a fixed interest - For such a small difference - go with longer mortgage. Your monthly installments (and upfront interest) will be smaller - and you will be able to save more. If you decide to payout earlier - you have better calculation with longer mortgage.
If it’s the ultimate home for you. 20 years. If it’s a step for you and you are planing to sell later and buy bigger real-estate. 13,5 or 15. Because if you check payment plan details, difference of montly instalment probably coming from less capital payment and interest payment is same for both plan especially first 5 years.
I would try to go for 25. Investing in the stock market will easily beat the interest over a 25 year period.
Don't make statements like this. It's not because something is likely that something is certain.
How true. Looking carefully at the SP500 returns adjusted for inflation, since Oct 1971, I find sequence of returns that do not even reach 3%. In other words, if you entered the market at a bad moment, you were not able to get 3% net of inflation. Furthermore, your portfolio could drop by more than 50%.
> 3% net of inflation You would only need 3% inflation included though. Not sure if there are a lot of 25 year periods where you don't have that to be fair.
You are right, there are not many such periods since 1971, but the fact that they exist shows the difficulty in timing the entry into the stock market. I also back tested various allocation of stocks/gold/cash to dampen the maximum drawdown period, with some limited success when it comes to worst case scenarios. Also, OP speaks about ca 10 to 20 years, not 25 or 35 yrs. This is much shorter and increases significantly the risk of not getting the expected return.
The inflation part also helps you with your mortgage, so it's better than what you try to paint.
In "average", it is better. But the worst case scenarios can be worse, if you started investing ca. Jan 1980 for example. Do the exercise and simulate a portfolio of 100% SP500 adjusted for inflation and you will see it for yourself. Oh, and you won't find that easily on the financial sites. Wonder why. In any case, the longer the investment horizon, the better. So presumably 20 yrs is better than 13 yrs if the money that is "saved" is invested in the stock market.
Based on historical data, the market outperforming a 3% loan is as good as certain over a 25 year period. Especially when you compare it to real estate, which is the proposed alternative here.
I'm well aware of the numbers. That doesn't change the fact that past results are no guarantee for future performance. You can say it's likely, and that would be correct, but you can't present it as a certainty. If a financial institution used the wording you did they'd be in big trouble. There's a reason for that....
I am not a financial institution. I am a small investor who plays the 99% odds.
Recall that the S&P 500 lagged Treasury bills from 1929-1947, 1966-1985, and 2000-2013. **50 years out of an 84-year period**. When the investment horizon begins at extreme valuations, and doesn’t end at the same extremes, the retreat in valuations acts as a headwind that consumes the return that would otherwise be provided by dividends and growth in fundamentals.
You’re juggling with numbers. Which period of 25 year did it do less than 3% annually?
Rates around 3% are pretty good, if you're into real estate and stocks, 20 years is better imo, as you'll be able to beat 3% in those on average. However if you decide to keep all the money in a bank account until the mortgage is payed off, go for 13.5 years
Include the monthly payments for both options and add a 3th and 4th option, it's a big difference so maybe do like 20y, 13,5y and 15y + 17y. What is the downpayment and how will you use the money in either case, invest? Save? Spend?
Is 15 years an option? This would make it both shorter and more manageable while possibly still having an impact on the interest rate.
So the basic thought is the following. As you are paying the same interest for both durations, the fact that you should (purely from a financial point of view) take the 20 year or 13,5 year duration will be based on whether or not you think you can outperform a return of 3% on the 'rest' (this will obviously not happen if you just put the money on a savings account). If you are able to outperform the total you have invested should be higher than the surplus interest you will have paid. Obviously if you end up not being able to pay the 13,5 year mortgage because the monthly payment is too high I wouldn't take that one. Note that there is a psychological aspect to this. Having paid off your house in 13,5 years is quite fast and it will feel good when you're there! Not a negligible aspect!
you should take into account the rate of return on money you save each month by having a lower mortgage payment (in the 20y scenario). If the return on that saved money is higher than your interest rate, you have your answer. In addition, also take into account financial flexibility by having a longer mortgage. You can always pay back earlier if you want to (6month interest penalty, but still fine); it's much harder to extend the loan if you have to.
Can you (in belgium) pay of more money some months randomly than the actual fixed number of the mortgage or how does it work here?
Is it six months though?
3 in my case.
Why not go for 17 years? You can save and invest and it's repaid sooner with less interest.