When you start to think about just what a home mortgage is and why some people spend a significant part of their lives even worrying about one (or working to pay one off), then you need to start asking a few basic questions. While you could always have the ability to simply make a subjective statement or guess why mortgages are the way that they are, the key to finding real knowledge and understanding is to simply look at the objective facts. Not only can you better understand something if you stick with the facts, but you will also be far more likely to come out on the winning side if you can understand how something works on a step by step basis.
Cost to Build
Houses cost money to build. This is a simple fact. From the supplies, workers, and rented equipment to put the structure up in the first place, all the way down to hooking up the utilities and having the paperwork set, you can have significant cost involved in creating a home. And, because you don’t really expect to buy something where the other person isn’t making money, you also have to include markup so that the building company can generate a profit as well. When you throw in the excess taxes, regulation based costs, and even the unexpected items that pop up, the cost of a home itself can actually be much higher than originally imagined.
The cost to build a house in general can sometimes confuse people just because they only pay attention to the market values. However, when all you are looking at is the cost from a market value point of view, then you might never actually think about what the house costs in the first place if you were to start building it from scratch. Building cost money from the very first shovel into the ground down to the final coat of paint and everything in between.
The next reason why real estate might seem so expensive is because once the sticker price is placed on it, you still need to find the ability to pay for it. And while you might have a few hundred thousand laying around if you are lucky, the majority of individuals need to focus on finding a competitive home loan in Singapore on sites like PropertyGuru Singapre in order to secure the proper funding.
This is typically where some individuals and potential buyers will become upset and say that banks are bad and shouldn’t charge interest. However, when you consider the fact that people who lend (banks) could potentially lend money elsewhere and make profits for investing in projects, in order for them to invest in you and allow you to even buy a home, then they need to have some sort of incentive to lend you money that they won’t see returns on for as much as thirty years. Even though interest rates on mortgages can vary, if you are going to borrow an amount so that you can live in your very own home, there are definitely mortgages that you can secure which are competitive with low interest rates.
Based Upon Inflationary Replacement Cost
The shocking news with houses is that they are based upon actual work and output, and therefore as costs rise over time so does the value of the house. Even though the inflationary wages drive up costs for someone to physically rebuild something, the costs to even use a hammer and pound a nail into a piece of wood represents increasing costs due to inflation as well. As prices in society rise due to inflation, everything rises. That hammer, nail, and even the piece of wood are all more expensive now than they were a decade ago, and significantly more than they were thirty years ago. What this means to you is that even if your house was built for far less money a few decades ago, to have professionals come in and replace it or create an exact duplicate house, it would cost a significant amount more today.
The good news about inflationary costs is that as long as you have assets, you should also see your wealth rise. With respect to home prices and how they continue rising, it means your home value will continue to increase over time. This is not only great for your finances as you have a large sum of equity to show for your payments over the years, but you can also see that equity continue to increase as long as the housing market and inflation in general rise up. When you consider the fact that so much is based upon credit scores and available cash flow these days, it only makes sense to understand what a loan can do for you.
Home loans are not just some simple thing that you can click a box, sign a dotted line and then have the money for the house of your dreams. A home loan can be a little trickier than that, but the good news is that you do have options. By taking the time to fully understand how loans work (as well as understanding how real estate and home pricing works), you can actually come out of a deal a lot better off than you would have imagined.
Love Counting My Pennies?
Sign up to get our latest content by email.