Mortgage @ 4%/year or savings @ 6%/year?

The problem with trying to save enough to pay cash is that the real estate prices go up and you can never get enough money to pay cash.

For my house here in Australia I put down a 25% deposit and was able to pay the balance off in 10 years, saving $83,000 in interest on a 25 year mortgage.

Thanks to well paying employment contracts, the 3 x houses in Laos I paid cash for.

stumpy wrote:

The problem with trying to save enough to pay cash is that the real estate prices go up and you can never get enough money to pay cash.

For my house here in Australia I put down a 25% deposit and was able to pay the balance off in 10 years, saving $83,000 in interest on a 25 year mortgage.

Thanks to well paying employment contracts, the 3 x houses in Laos I paid cash for.

Hi Stumpy,
Well, if real estate prices go up faster than returns on investments, then one should not participate into the madness because he can only increase it.
He should buy only upon return to normalcy.

I am glad you bought houses with cash. You definitely are an artful home buyer. 

Buying house with cash is a strong message to those who are hot about going the other route and is a real proof that yes, it's possible, advisable and the best way to go about trouble free ownership. 

This question requires a complex answer and that answer has to take into account the local situation regarding house prices.
Back in Blighty, I saw plenty of people lose their shirts because they bought at the peak and couldn't afford the payments when the interest rate shot up.
Even worse, they couldn't sell either because the buildings were of poor quality and the price had fallen anyway.
Basically, they were buggered.
Silly people are everywhere as I'm seeing here at the moment.
House prices have probably hit their peak but there is massive building, even on flood plains, and people are still buying.
The banks are restricting loans because they know what's going to happen but the building continues so we now see hundreds of empty properties and, a most important indicator, the adverts are showing lower prices on new builds.
I noticed one the other day, Rp1.2 billion had dropped to Rp950 million.
All very quiet and without any mention of special offers but the indication remains - They're started to have problems shifting the stock.
Taking out a loans of any sort at the moment would be a very silly idea (At least in the Jakarta area).

mas fred wrote:

This question requires a complex answer and that answer has to take into account the local situation regarding house prices.
Back in Blighty, I saw plenty of people lose their shirts because they bought at the peak and couldn't afford the payments when the interest rate shot up.
Even worse, they couldn't sell either because the buildings were of poor quality and the price had fallen anyway.
Basically, they were buggered.
Silly people are everywhere as I'm seeing here at the moment.
House prices have probably hit their peak but there is massive building, even on flood plains, and people are still buying.
The banks are restricting loans because they know what's going to happen but the building continues so we now see hundreds of empty properties and, a most important indicator, the adverts are showing lower prices on new builds.
I noticed one the other day, Rp1.2 billion had dropped to Rp950 million.
All very quiet and without any mention of special offers but the indication remains - They're started to have problems shifting the stock.
Taking out a loans of any sort at the moment would be a very silly idea (At least in the Jakarta area).

Hi Fred,
Honestly speaking I have not expected such deep insight.
It's good that the Banks at your place stopped lending.  In USA they gave money to everybody thinking that if borrowers cannot pay back their loans, they (the Banks) will easily repossess the houses.
What happened is that a bubble has been formed and the Bankers saw themselves with lots of repossessed properties unable to sell them.
Losers were the home-buyers who either continued paying mortgages for houses with values cut in half (Florida and Nevada) and less elsewhere or saw their house repossessed.
Winners were the Banks who began selling repossessed homes.  Banks never lose as much as the individual who woke up in the street without a home.
With the exceptions of Banks which closed down or merged, all the Banks are fine; the home-buyer is not fine.  The American dream of home ownership became an American nightmare.
I laughed when I've read homes seized because the mortgagee could not pay US$400.
I don't know what makes some folks rush to buy house immediately they get a job instead of starting to save (invest) an amount equal to monthly mortgage in some financial investments.

Only demons in somebody's head push him to rush at "buying" instead of investing for the right moment.  Getting money is always better than giving money.

There are countries where people buy property with cash.  Banks in those countries cannot create a bubble like the one in USA. 

A friend of mine in the USA was talked into buying several properties on mortgage at the height of the property bubble. He ended up with no houses and 1.5 million $ in debt. He left to teach English in Asia (a typical lost soul job) and over a few years cleared all his debts by telling the banks "So I owe you $200k? Well, I'l never be able to repay that, but I can offer you $10k - that's all I have right now." They all accepted and he is now debt free (still teaching English in Asia, though).
I dislike loans and paid for all my four houses in cash.

beppi wrote:

A friend of mine in the USA was talked into buying several properties on mortgage at the height of the property bubble. He ended up with no houses and 1.5 million $ in debt. He left to teach English in Asia (a typical lost soul job) and over a few years cleared all his debts by telling the banks "So I owe you $200k? Well, I'l never be able to repay that, but I can offer you $10k - that's all I have right now." They all accepted and he is now debt free (still teaching English in Asia, though).
I dislike loans and paid for all my four houses in cash.

Hi Bep, 
1). That's a terrible story and one big happy end for a man who can be easily duped.
Why are some people easier to fool than others you reckon?

2). I got disappointed when I have read you have only four houses.    What's the matter with you? I thought you have at least nine of them. 
Or maybe you sold all of them and are now down to four? 
I need the truth for my private studies here in the Caribbean.

I sold the house in Indonesia (too difficult to maintain when not living there) and am down to three now. None of them was bought as an investment. I prefer not to be geographically tied down.

The USA guy I mentioned fell for a "friend" giving advice.
I actually met him in Taiwan when he just lost his teaching job (due to an argument with his boss) and with it the provided flat. Since I had a big house there (this one was rented!), I took him in for free for a few months (until he moved together with his new girlfriend). It must be tough to have to go through all this (after losing all your life's savings) at the age of sixty-something.

beppi wrote:

I sold the house in Indonesia (too difficult to maintain when not living there) and am down to three now. None of them was bought as an investment. I prefer not to be geographically tied down.

The USA guy I mentioned fell for a "friend" giving advice.
I actually met him in Taiwan when he just lost his teaching job (due to an argument with his boss) and with it the provided flat. Since I had a big house there (this one was rented!), I took him in for free for a few months (until he moved together with his new girlfriend). It must be tough to have to go through all this (after losing all your life's savings) at the age of sixty-something.

Hi Beppi, 
1). Not geographically tied down?
Yachting is for you.  May I suggest a 60ft catamaran? Especially that prices are low nowadays.

2). Did you notice that there are folks who always find themselves into trouble?
And also that they always drag their contacts down into trouble too?  They have nothing to offer.
One must identify them so as not to become their next victim ...

3). I would never listen to anybody when I see something like 'Mortgage @ 4%/year or savings @ 6%/year?' clearly written.  I will use my own thinking ... and I know there is more than 6% / year somewhere ...
Like Fred said above, the matter is complex. However, I know that when I knock my head against complexity, I must dilute it down to one simple thing: wisdom