I often read from recognized or deserving financial advisors that the loan should be avoided at all costs, and that the apartment should be rented only from the money we earned, and then we should live in a sublease, as we will not enrich the bank. I decided it was time to put justice between the two camps with a very simple figure!
If I take out a loan, some of the repayment will be my own money (capital)
We are so scared of the credit that we have forgotten to notice the obvious: a part of the loan repayment fundamentally reduces our capital debt. So in case of a loan repayment of HUF 150,000, the “failed interest” will not be HUF 150,000, but a part of it!
Part of the sublease has no capital. We only pay the cost of housing, which can be considered as interest on the loan
You see the chart well! When you pay a rental fee, 0% of your equity is collected from that part and 100% of the payment is added to the cost side. If we assume that your monthly loan repayment and loan repayment for the same category of property are the same (eg 150,000 / month), then we have a scary picture:
Which is the more expensive interest? A loan or a sublease?
You’re right! In addition to the same monthly housing expenditure, the apartment is almost 2x more expensive than borrowing and paying interest. Note that for almost a decade in Hungary, the same (or even cheaper) loan repayment is the same as that of a flat in the same category.