Learn / Part 3 · Inside the Financial System
Mortgages and the Rent-or-Buy Question
Should you buy or rent, and how do you borrow for a home?
In brief
A mortgage is the largest loan most people take. The right question is not “can I get one?” but “what does it cost over time, what if conditions change, and how long will I stay?”
Key ideas
The horizon decides
Buying has high entry and exit costs, so it needs time to pay off; short stays often favour renting.
Make an insight card →Stress-test the payment
Check you could carry the payment if rates rose and one income fell.
Make an insight card →Overpaying early helps most
Reducing the balance early cuts interest charged for decades.
Make an insight card →Try it
Mortgage explorer
See how much of a mortgage is interest, what overpayments do, and whether you could survive a rate rise.
Open the full page: formula, variables, worked example and cautions →
Also relevant: Rent or buy?, Borrowing capacity & debt-to-income
Red flag
Being urged to borrow the maximum because “you can afford it”.
Ask before you sign
- What if rates rise, what happens to my payment?
- What are all the costs of buying and owning, and what are the charges to leave early?
Do this week
Ask a lender for the stress payment at +2 and +3 points.
Try it · 10–45 minutes
Run rent-or-buy with your own numbers at three horizons: 3, 8 and 15 years.
See it in a life
Cases that bring this chapter to life
Pause and reflect
Private to this device. Nothing is sent anywhere.
Words worth knowing
- Mortgage
- A loan to buy property, secured on that property.
- Loan-to-value (LTV)
- The loan as a share of the asset’s value. A 90% LTV mortgage means a 10% deposit.
- Equity (in a home)
- The part of a home’s value you own: its value minus the mortgage still owed.
- Fixed rate
- An interest rate that stays the same for a stated period.
- Stress test
- Checking whether a plan would survive a bad but plausible event, such as higher rates or lost income.
- Amortisation
- Repaying a loan in regular instalments so that the balance reaches zero at the end of the term. Early instalments are mostly interest; later ones are mostly principal.
Companion notes written for this website, based on the topics of Chapter 13. They explain ideas and do not reproduce the book. General information, not personal advice.