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What is better when you want to buy an apartment in Prague - to take out a mortgage and pay it off for decades, or to save for housing gradually? We decided to find the answer in this episode of the Living Prague series.
Many people are afraid of mortgages - they are afraid that they will be "slaves of repayments", that they will not have enough money to pay them, that they will be tied up for decades... And so, in an effort to get their own home, they decide to save up for an apartment. However, this is often not the happiest decision. Why?
The sooner the better.
As practice shows, those who decide to take out a mortgage at the youngest possible age do much better. The reason? House prices are constantly rising, new housing construction is slow and money is constantly losing value. And this is what people with a mortgage can benefit from - they owe money at the old value and pay it back at the new, lower value.
For example - a small apartment in Prague costs around 5 million. One puts 1 million of one's own money towards the mortgage and borrows 4 million. Every year the price of the apartment goes up by 5%, which is half of the original price in 10 years. So the longer the apartment is owned, the higher the price. Add to that the fact that mortgage rates will soon drop back below 4%, and the monthly mortgage payment is essentially the same as the rent on a similarly sized apartment.
Who saves, gets three?
But what if a person decides to save for an apartment on his own? With a normal income, he or she may end up living in rented accommodation all his or her life... In addition to the price of the apartment, he or she would have to "put aside" another 5% of this amount each year (i.e. the value by which the property will increase each year). And that's an unachievable goal for most people.
On the other hand, even a mortgage doesn't always have a happy ending. Some people fall on hard times and can't afford the repayments. They are forced to sell their home, which may not always be profitable (sometimes the price of the home doesn't even cover the amount of the debt). So the ideal is to take out a mortgage where the repayments are not at the financial limit, while having a financial reserve in case of an emergency.
What do you think? Do you think a mortgage is better than trying to save for a flat? Let us know in the comments!
0:00 Should I take out a mortgage or save for an apartment?
0:39 The long road to enlightenment
1:07 Why not wait to get a mortgage
2:31 A small example
3:10 Why not to save for an apartment
3:37 The risks of a mortgage
We have also dedicated a separate video to the topic of why to buy an apartment at the youngest possible age. Take a look: • Jak mít na vlastní byt...
Apartment prices in Prague are an endless topic. Would you think that living in Vinohrady would actually be cheaper than in a block of flats in the South Town? You can find the explanation in the video: • Byty v Praze za babku:...
Are you wondering when to actually buy an apartment? In a previous episode we explained why you should definitely not delay buying: • Poslední šance koupit ...
By the way, Prague is planning to build its own rental apartments in the near future. But they will not be for everyone. Who will live in them? Take a look: • Městské byty v Praze -...
And speaking of the future - have you ever wondered what our metropolis will look like in 2050? We've found the answer for you: • Praha v roce 2050 - ja...
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Daniel, Lukáš, Honza, Martina, Květa, Ruda