Should You Take A Mortgage In Your 20s?

One of my young but brilliant friends sent me this text early on a Saturday morning:

“Do you think I should take a mortgage now?” He’s about 24 years, he has done really well career wise, and his pay slip could  support a mortgage if he sacrificed a few luxuries well-to-do 24 year olds typically enjoy.

Personal finance advisers sit on two extremes when it comes to home ownership: some feel that a home is an investment, while others think buying  a home is equivalent to pouring money down your drain, and they point to the US market to justify this point. Both sides have a point and we will debate that later, but today we look at the pros and cons of taking a mortgage in your 20s.

Pros

1. Focus: Most of us spend our 20s trying to find our way, and we tend to waste a lot of time career hopping, investment hopping relationship hopping etc. A financial commitment such as a mortgage could be good for you. A “financial lock-down” means you think twice about impulsive career moves, you waste less money, and you automatically develop a long term view of your finances.

A home may seem like too big a commitment at 24, but it helps to think about it like any other investment, instead of thinking you are committing to a loan.

2. 10  years is a really short time! My first instinct was to tell my friend that he was too young to make such a commitment, then it occurred to me that if I had taken a 10 year mortgage when I first got employed, I would almost be done with it.  I have a feeling the next 10 years (30s) will go by even faster with growing financial commitments. I wouldn’t advice one to hold onto a mortgage for 20 years though, but we will discuss this later.

Invest as much as you can in your 20s. If you keep holding it off, you could end up at 50, still waiting to own a home.

3. You will waste a lot of money in your 20s: When you first get a job, you probably have some naive investment ideas (like my investing in shares when the NSE was at 6,000 plus), ormistakes like these. Others spend their 20s drinking, partying, going on holiday etc,

which aren’t bad if done in moderation,but the  fact is we waste a lot of money in our 20s, and it wouldn’t hurt to have a commitment that ensures we invest it.

Cons

Job stability: Most people move jobs a lot in their 20s, and others change their careers totally. This instability could cause you to lose your asset, should you find yourself unable to service your mortgage commitment.

But then like I wrote above, if you play your career cards right, you may find that your salary can only grow in your 20s.

Life changes: Most people prefer to buy a home when they’ve settled down in life (married), so that they can make a more informed decision. You may end up buying a home that you will not live in, though this isn’t really a disadvantage, as it is still your asset. You can rent it out.

Forgone investment opportunities: In the last couple of years, we have seen tremendous growth in the Kenyan housing market, but this is notguaranteed to continue into perpetuity. In mature economies, the appreciation rate of real estate is sometimes lower than other investments. By committing to buying a home, you may end up forgoing opportunities to invest in assets that would grow faster.

This post is part of a 4 part series on mortgages sponsored by Barclays Bank . In the next post, we will examine the factors one should consider before taking a mortgage and how to ensure the decision is right for you.