DON'T TAKE OUT A MORTGAGE

On Instagram, I briefly touched upon the topic of "I don't understand why anyone takes out a mortgage," but I just quickly threw that together on my phone. However, I believe this topic deserves a longer explanation because even intelligent, educated people fall into what is perhaps capitalism's biggest trap, called a mortgage.

There's nothing wrong with business, i.e., investment or financing, lending, as it ensures the current economic climate. But let's stop there, because I want this post to be understandable even to those who are most likely to take out mortgages and who absolutely shouldn't be doing so.

The essence

I would simply ban residential mortgages altogether, because banks make the most money precisely from those people for whom a mortgage is not an investment, but rather they take out a loan just to have a place to live. I wonder if the following sentence sounds familiar to anyone:

I'd rather pay for my own apartment than someone else's. Why pay rent if I can pay for my own?

Banks don't make money by issuing loans that people pay back well before the term ends. Banks make a killing in two cases:

1. When people with little money, who can't afford their own home at all, can't pay their installments and default on their loan.
2. They pay installments for 20 years, but in this case, they pay back almost double the amount borrowed.

Let's take a simple example.

The apartment you want to buy costs 60 million.  

You pay a 20 million down payment, and the bank lends you 40 million forints.

The monthly installment for 20 years, or 240 months, is 372,852 forints.

372,852 forints x 240 months = 89,484,480 forints. 

This is how much you pay back over 20 years for a 40 million loan, even though you already put down a 20 million down payment. 

So, you buy the 60 million apartment for 109,484,480 forints, and it becomes yours, but only if you can pay the installments. If not, you lose your 20 million down payment and all the monthly amounts you've paid so far, because everyone can be sure that if you can't pay and the bank takes the property from you, you won't see any money back.

So my question is this:

Why would anyone take out a mortgage for residential purposes? Why? Why am I considered stupid when I say that you should rent an apartment, it's the best arrangement and financially the best solution. You rent an apartment for 220-260 thousand per month, and no matter what, you can move, you don't lose your entire life if you happen to lose your job, get divorced, or anything else happens. Now imagine that you still go into a mortgage with the above conditions, and these are not even bad conditions given the current loan market. So, you take out the loan, and it turns out that the neighbors are peasants, the stupid dog barks all night next door, the asshole couple argues all day and then howls loudly while having sex and you hear everything, or the building manager is just plain crazy. I could write so much, and you can't move, you live there, no matter what, you have to stay there.

If you rent an apartment, you can move, and you have 10-14-20 million forints in your account. Because anyone who wants to take out a mortgage must also have a down payment. But if you have tens of millions or even more money, then invest it in anything, but damn it, don't take out a mortgage. I didn't want to overwhelm you with everything at once, so I left one small detail for the end. You rent an apartment for 260 thousand forints, but for simplicity's sake, let's say you rent it for the same amount as the bank loan installment would be, so 370 thousand forints. Let's say you're as stupid as hell and you say you'd rather pay this 370 thousand forints towards the bank installment because at least it's your own, not the landlord's. I've already talked about this above.

A 370 thousand paid installment to the bank looks like this: the bank takes its share from your 370 thousand forints, which is usually 50-55%, so 185-195 thousand forints goes to the bank, and your debt decreases by the remaining 185 thousand forints.

At this point, I have to ask the question again.

Why don't you just rent an apartment instead? 185,000 forints goes to the bank, you could pay this for rent, and it still stands that you don't have to put all your savings into a down payment. It's completely incomprehensible to me why our education system doesn't teach children economics, even simply, or just enough so that they are aware of basic concepts that provide some financial clarity. But just enough so that people don't ruin themselves with unbelievably stupid financial decisions. Of course, I know the answer, but I don't want to get political, because if there's one thing that's utterly disgusting, it's politics, so let's stop there. 

But let's not ignore the fact that a loan is a great thing, but not for those who don't have money. A loan is the best choice for entrepreneurs who want to finance their investments, but certainly not for those for whom paying the monthly 370,000 installment + utilities + family expenses is a matter of life and death. Don't do it. Rent an apartment, live in a rented place, I live in one too, even though I own several large, valuable properties, but it never occurs to me to live in any of them permanently, and I'll tell you why. 

If I were to build a house for myself, it would not cost less than 500-600 million. Now, don't get all stressed and nauseous about this; that's just how it is, a property for my lifestyle would cost me about that much. Now, if I took that 500 million and built my house with it, once I moved in, I could forget about that 500 million forints. It's dead money. True, I live in it, but after that, I can flush that 500 million down my beautifully personalized toilet because I can't circulate it.

Let's not overcomplicate things; if I were to just put this 500 million forints into government bonds at the current central bank base rate, I would earn 70 million forints a year while playing PlayStation all day.  This way, 500 million becomes 570 million in a year, and if I reinvest it the next year, 570 million becomes 630 million, and so on. And government bonds are one of the simplest investments; there are only better and much more profitable investments than this. 

So the question is, why should I live in my own property when the money I would spend on it, with a simple investment, brings in so much money without work that I can easily pay for my rent, no matter how expensive, and still have an extra 50 million left over? That's why I live in a rented apartment, because it's not worth living in my own. These numbers work the same way with smaller figures. Do you have 20 million forints that you would put into a down payment for a mortgage? Put it into government bonds at 13.5% interest and you'll earn a clear 2,800,000 forints in a year.

How much is the rent? 240-260? You can pay your rent for a year from the interest, you don't put all your savings into it, and this amount doesn't come out of your salary. The remaining money can go to the ungrateful kids and the big shopping spree at Auchan. 

The problem is that nobody tells you this, because most people don't even see it, and those who do, frankly, don't care what you do. Maybe they even start by saying, "Hey, listen, it's not worth it," but then the know-it-all, very smart idiots come along and explain to you why a mortgage is good because at least it's your own. It's quite astonishing. 

I've started a few times, often explaining it in detail, but after a while, I stopped, either because the other person couldn't be convinced, or it would have hurt them to realize how badly they had screwed up the next 20 years of their life. And you understand. What should the poor soul do after that? They're already in it, they can't get out, often it's better not to even think about it. Often it's better to leave people in their own world because it might be bad, but at least they're not aware of the reality, which in many cases isn't such a big deal, because reality has been quite unbearable lately. Especially if you go to a bank and want to take out a mortgage. 

I thought a lot about whether to write this post because it will hurt many people. It will certainly hurt those who have taken out a mortgage, but then I decided that there are also a significant number of people who are planning to take out a mortgage or are trying to solve their housing problem with this arrangement. 

I wrote this post for them.

You're welcome.