How to win an apartment on a mortgage


Remember: surely you have had to hear more than once about the constant rise in real estate prices. It is. In almost all Russian cities, with few exceptions, rising apartment prices significantly outstrip returns from bank deposits. Even during the recent economic crisis, housing investments have either not decreased or have declined significantly. Both of these facts suggest that real estate is not only a profitable way to invest, but also a reliable way to invest.


Follow the rise in apartment prices in major Russian cities over the past 5-10 years. In the long run, the rise in prices of square meters exceeds the interest of overpayments on mortgages. Moreover, the growth of market prices does not depend on the cost of the apartment – any apartment will rise in price in equal proportions. The borrower’s winnings will be the difference in the market price of the apartment at the time of payment of the loan and the amount of the actual overpayment on that loan.


For example, if you decide to purchase an apartment worth $100k on a loan for 10 years with zero down payment at 12% per annum, mortgage overpayment will be $60k. For the rise in prices in the housing market to exceed overpayment on the loan, it must be at least 4.8% a year. Statistics show that prices for square meters are rising significantly faster. The gain when buying an apartment into a mortgage becomes apparent.


Remember three rules to help get as big a mortgage gain as possible. First: the amount of borrowed funds should be as small as possible. That is, the down payment should be as large as possible. Second: the loan term should be as long as possible. The loan you pay off in the same shares, and the apartment grows in price exponentially. The third rule is the value of the interest rate should be as low as possible.


Imagine having the very amount you decide to take into a mortgage. Simple calculations show that they are better invested in a business, in securities or a bank deposit than paying for square meters. Complex bank interest on the deposit, which will accrue over 10 years, will double the starting amount of the warehouse, or even more. Overpayment on the mortgage would amount to a significantly smaller amount.


If the same $100k from the previous example you put on a deposit at 8% per annum, then after 10 years the deposit amount will be $214k. You will end up with an income of $114k by overpaying on a $60k mortgage. The net profit from such an operation will be 54% of the original amount or the value of the apartment. If in this calculation the 10-year period is replaced by 20 years, then in the end you get a 100% win in comparison with the initial cost of the living area.

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