The Trap of “Can I Buy a Home for the Same Price as the Rent?” “Overpriced” home in one’s 20s… “Double burden” of pair mortgage and educational expenses

As housing prices continue to soar, a household survey conducted by the Ministry of Internal Affairs and Communications found that the percentage of homeowners in their 20s (households with two or more members) reached a record high.

Behind this trend is believed to be a sense of urgency that “if I don’t buy now, I may never be able to afford it,” as well as the spread of “pair loans” for married couples and “super-long-term loans” with loan terms exceeding 35 years.

However, there is a danger that if household income declines due to childbirth or other reasons, repayment of the loan will suddenly become difficult. If the current rent is lower than the current price of the home, the home can be purchased for less than the current rent. And if the need arises, you can just sell the house and repay the loan. It does not always work out that way. reality. The reality is that it doesn’t always work out that way.

The risk of taking the plunge and buying a home is not limited to those in their 20s. The risks include divorce after purchasing a house with a pair of loans, shortfall in family finances due to loan repayments coinciding with the peak of educational expenses, and bankruptcy in old age due to loan repayments that will continue after retirement. Beyond the dream home, a “scenario of despair” may lie ahead.

Reasons why young people are rushing to buy at “high prices

Behind the rush to buy a house are “impatience” and “expectation” of rising housing prices, and a “mechanism” that allows people to buy even at high prices.

Impatience” to be able to buy

The average price of newly built condominiums for sale in Tokyo and the three neighboring prefectures in FY2013 was ¥93.83 million (source: Real Estate Economic Institute), a record high. The soaring prices of construction materials and labor costs, combined with investment demand mainly from foreign investors, have caused housing prices to continue to rise. This situation is creating a sense of urgency among buyers, who fear that if they do not buy now, they will never be able to afford a home again.

◇”Expectation” of rising prices

Rising housing prices create the “expectation” that the value of the house will continue to increase after purchase, and a sense of security that the house can be sold if the need arises. If prices continue to rise, it is “profitable” to buy early. This expectation and sense of security justify the purchase of a house, even if it is at great cost.

Mechanisms that make it possible to buy a house even if it is expensive

The spread of “pair loans,” “joint and several liability,” “super-long-term mortgages,” and other “mechanisms” that make it possible to buy a house even if it is expensive is also encouraging home purchases.

The use of “pair loans” and “joint and several debt” is increasing as dual-income earners become more common. Since these loans are based on the incomes of both spouses, the borrower can take out a larger loan than he or she could alone. Recently, an increasing number of financial institutions are offering “ultra-long-term mortgages” with repayment terms of 50 years. Longer repayment periods allow for greater borrowing capacity and lower monthly repayments (although interest rates are higher and total repayments are higher).

You have managed to acquire a home of your own. However, a harsh reality may lie ahead.

Pair Loan Gone Mad by Childbirth or Leave of Absence

In cases where a couple bought a house with a loan based on the income of both spouses, such as a pair loan or joint debt, there is no end to the number of cases where the household income declines due to retirement, leave of absence, or job change by one of the spouses, and they are stuck with repayment of the loan.

In particular, for couples in their 20s and 30s, there is a strong possibility that the wife will take an extended leave of absence or retire due to childbirth or childcare. Although she had planned to return to work immediately after giving birth, her absence from work becomes prolonged because she cannot find a daycare center, her health does not recover, or she needs nursing care for her child’s chronic illness or disability. In some cases, the employee resigns without leaving the company. Once a blank is created by a prolonged leave of absence or resignation, income is likely to drop even after returning to work, and subsequent repayment plans will be greatly disrupted.

In some cases, when a decrease in income makes it difficult to repay a loan, the borrower may be eligible for relief measures such as deferment or reduction of repayment after examination by the financial institution where the loan was taken out.

However, these are only ways to temporarily reduce the burden by postponing repayment. Repayment is not forgiven, and the final burden will increase. If the relief measures are not granted and repayment falls into arrears, the financial institution will demand a lump-sum repayment, and in some cases, if the repayment cannot be made, the couple may be forced to give up the house.

The Tragic End of Pair-Mortgage Divorce

It is said that one out of every three couples divorces. Divorce after the purchase of a house can cause a variety of problems. In particular, those using “pair loans” or “joint and several” mortgages are likely to get bogged down.

Generally, a mortgage loan cannot be changed in the middle of the repayment period, so the obligation to repay the loan remains until it is paid in full, even after the divorce. The easiest way is to sell the house and pay it off. However, if the loan balance exceeds the appraised value of the house (i.e., the proceeds from the sale), the loan cannot be paid off even if the house is sold. The longer the repayment period, the slower the pace of principal repayment, and thus the higher the risk of being overleased.

If it is difficult to sell the house, or if one does not want to change the children’s living environment, there is an alternative method of continuing to live in the house while paying off the loan. In this method, the person moving out of the house must also continue to pay the loan. The double whammy of having to pay the rent on the house you live in and the rent on the house you are moving out of would put you in a very difficult situation.

It is also important to note that in the case of a pair loan, both parties are co-signers, so if one fails to repay the loan, the other must repay the loan. There are ways to eliminate a pair loan by consolidating loans or refinancing, but in many cases, if the loan balance is large, the income of the party taking over the loan alone will not be enough to pass the screening process.

Education expenses and loans “double burden of hell

Families with children are likely to find themselves in financial trouble at the time when their children enter college.

Most of the educational expenses incurred up to high school can be managed out of the family budget on a case-by-case basis. However, when it comes to college, tuition alone ranges from several hundred thousand yen to several million yen per year. In many cases, students need to send money home if they live in a boarding house, or commute to school from their parents’ home to pay for their commuter passes. This continues until graduation. In addition, the family’s finances will be strained by the repayment of the housing loan.

The amount of money needed for college is large, and the timing of the need is fixed. Therefore, it is advisable to prepare the funds systematically before entering college. Even if you know that, the mortgage repayment will come every month. If the burden of the loan is heavy and the household cannot afford it, preparation for money that is not needed right now will have to be put on the back burner. While you are saying …… when you can afford it, your children will grow up quickly.

Scholarships and educational loans are ways to make up for the lack of funds for college. However, loan-type scholarships and educational loans are only “loans. If they are used, they will leave a bill for future children and parents themselves. While the priority is to achieve the desired career path, they must be used in a planned manner after careful consideration.

The actual amount of education expenses required will vary greatly depending on the career path and educational policy. In many cases, if expenses for cram schools and lessons are high, or if the timing of higher education coincides with that of other siblings, there may not be enough money to cover the cost of college.

50-year loan leads to “retirement bankruptcy

A super-long-term loan can threaten one’s life after retirement: if one takes out a 50-year loan at age 30, the repayment will continue until age 80 unless the loan is repaid early. although it has become common for people to work well into their 60s and beyond, many retirees find that their income declines when they are reemployed or re-employed after retirement. In some cases, people are unable to work even if they wanted to due to health or parental care.

It is also dangerous to rely too heavily on retirement benefits, pensions, and savings.

Many people plan to use their retirement savings to pay off their mortgages early, but if they fail to pay them off, the subsequent repayments will put pressure on their retirement years. In the case of defined contribution pension plans, which have become mainstream in recent years, the amount of money received is not fixed until the time of retirement (when the money is received) because the retirement amount fluctuates depending on the investment results. If the investment is not successful, the plan may go awry.

In addition, a retirement plan that is based on the devaluation of savings entails the “longevity risk,” the risk that if you live a long time, your savings will run out.

The key to avoiding this risk is to keep daily expenses within the range of pension and other income as much as possible. Instead, they should leave their savings untouched as much as possible and use the money to cover temporary and unexpected expenses such as medical care, nursing care, travel, hobbies, and other entertainment expenses.

This becomes more difficult when everyday expenses balloon as loan repayments remain after retirement. Old-age bankruptcy awaits at the end of a fast-paced devaluation of savings. There is no respite if you are so busy paying off your loans that you have no time to prepare for retirement.

The Trap of “You Can Buy a Home for the Same Price as Your Rent

You often see advertisements that say, “You can get a home for the same amount as your rent.

If you are going to continue paying rent for a house you will never own, it is rational to buy your own home as soon as possible. However, there is a trap in this. When you buy a home, in addition to paying off the loan, there is the cost of “owning” the home. It is dangerous to buy a home based “only” on the current rent and loan repayment.

Depending on the property price, in many cases, the cost will increase by several hundred thousand yen to one million yen per year compared to renting. If a variable-rate mortgage is used, there is also the risk that loan repayments will increase due to rising interest rates.

If a home is purchased without taking these costs into account, the possibility increases that income and expenditures will be worse than anticipated and repayment will come to a standstill. It is important to make a financial plan with a margin of safety in anticipation of future increases in fire insurance premiums and reserve funds for repairs.

The end of the real estate bubble…fear of not being able to sell

If push comes to shove, we can sell the house and pay back the mortgage.

If we outgrow the house, we can buy a new one.”

In many cases, purchasing a home based on the assumption that the home will be sold will be successful as long as home prices are rising. If we look at the last 10 years, there have been many “successes. In fact, it is not uncommon to see properties such as condominiums in central Tokyo where the sales appraisal value has more than doubled the purchase price in 10 years. However, if that premise collapses, there is a risk of falling into a predicament in which it is impossible to sell.

Due to soaring construction materials and labor costs, as well as investment demand, “new home” prices are likely to remain high for the foreseeable future. On the other hand, in the existing home market, the gap between the “selling price” and the actual “contracted price” is widening, and home prices have begun to decline in some areas.

While the population of the working-age population, the main group purchasing homes, is expected to decline, the market is also expected to see a large supply of existing properties and the land on which they are built, due to the occurrence of inheritance by baby boomers and other factors. If the supply of properties increases while the number of buyers decreases, the decline in housing prices may accelerate, especially for existing homes and detached houses that are difficult to invest in.

Under these circumstances, the risk of buying a house with an expensive and long-term loan based on the assumption that the price will rise or be sold is high. If you are going to buy a house in the future, it is increasingly important to choose a house that is suitable for your income and future plans, based on the assumption that you will continue to live in that house.

Buying a house is not a bad thing. However, we should avoid rushing to buy a house just because other people are buying.

It would be disastrous if a home that is supposed to enrich one’s life puts pressure on the family budget, forcing one to live in a constant state of stress. We must consider the balance between daily living expenses and future needs such as education and retirement funds, as well as the cost and risk of owning a home. We hope that you will make a careful decision on whether or not to purchase a house, and on your budget and borrowing amount, after running simulations. When in doubt, it is important to stop for a moment.