This calculator computes the global cost
of buying a house comparing the repayment mortgage with
the investment (i.e. ISA) based one.
Experiment with different inflation and investment growth
assumptions. This will highlight that the choice of mortgage
is very much dependent on your view of the future*.
A balanced cautious view for the traditional 20-25 year
mortgage would be to go for the investment route, but
with the monthly investment being made in the expectation
of LOW investment returns. That way any extra performance
feeds into a nice surplus.
For shorter terms (under 10 years) investment volatility
swings the view towards the certainty of the repayment
route.
Intermediate terms are very much dependent upon ones personal
position and attitude towards risk and reward.
Calculator Notes
The Route Comparison figure is derived as follows.
Figure = Total Repayment Route Cost less Total Investment
Route Cost plus Future Fund Value less Mortgage
Investment charges - these are based on a Legal &
General ISA. Actual charges in your own case may be
different.
For mathematical purity the interest is calculated
on the basis of the twelfth root of the rate selected,
and the outstanding capital recalculated each month.
In practice mortgage maths is different in detail and
so do not expect these figures to match those of any
quote. (For example most lenders DO NOT recalculate
the outstanding capital balance with every payment,
for the simple reason that this gives them a higher
revenue.)
Mathematicians will note that surely, all other things
being equal, if the interest rate and investment growth
rate are the same, there should be no difference between
the two routes, whereas this calculator shows that
when these assumptions are made, the investment route
is always the most expensive. This is because of the
costs of investment.
