There can be life in dead money - Mary Holm

Monday 4 October 2004

Q: I rent my home and keep savings in the bank (a potential house deposit, because isn't buying a house what we're all supposed to do?) and often hear the "rent is dead money" comment from friends and colleagues who have already bought a home and are paying off a mortgage.

But surely the hundreds of thousands of dollars people pay in interest over the term of their mortgage is

By The Landlord

just as "deceased"?

I often wonder if there is a way of comparing the "rent-and-invest versus mortgage" decision 15 years into the future.

Say, Joe Bloggs has $170,000 from late Aunty Betty which he puts into long-term government bonds (or maybe some in cash, some in index funds), and pays $300 rent a week, whereas his sister Josephine uses her $170,000 as a deposit on a $340,000 house, with a 15-year mortgage.

Maths was never my strong point, but with vague recollections of net present value calculations, maybe you can help.

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