A financial analyst, Kalu Aja has said that taking mortgages is better than living in rented or leased apartments.
The expert said this in a post shared on microblogging site, X, formerly Twitter.
Kalu made the assertion following a viral video by a financial expert who said a mortgage is not an investment but a fancy name for rent.
The expert added in the video that ” A mortgage is only an investment if the house is making you money.”
But Aja explained, “If you rent, you are paying rent that is subject to inflation. If you take a mortgage. You are paying a fixed cost for 10, 20 or 30 years with no inflation. But it’s more than that.
“If you lease/rent a house, the bank owns it; you are renting from the bank, you have no right to the appreciated property, and you also pay, in some instances, renters insurance that covers the interior and property in the home. You can’t sell it because it’s not yours.
“If you take a mortgage from the bank, buy a home, and paint it, the appreciation of the property is yours, and the bank or any financial institution will even offer you more credit using that ‘equity’ you now own on that property.”
He further added that mortgages are smart ways to hedge against inflation considering the fixed cost of payment over the agreed duration.
He said, “Mortgages save on inflation-indexed rent. That inflation I do not pay as a homeowner is unearned income to me.
“A couple starting at 30 do not have the capital or assets to approach a bank to borrow to buy homes and rent out. The way it’s done is a first mortgage, which can then enable that couple to build equity that they can use to buy a second home and possibly rent out the first home that they own even if they are paying a mortgage.”
He said a home bought through mortgage is an asset, adding that it “sits on your asset side in your balance sheet, and the mortgage sits on your liability side.”
According to him, over the years, inflation rises while the house value appreciates.
He said when the asset value of the house appreciates, “the cost of the liability falls, because you’re paying exact Naira cost for a minimum of 10 years. Thus, over time, your net worth appreciates with a mortgage.
“There is good debt and bad debt. All things being equal, a long-term mortgage with low interest rates to acquire a home in a good location is a good debt.”