Oy wey, where do I even start on this one?
But as the title suggest, Mr. Frugasaurus are on our way of getting ourselves a mortgage. It is not the house in the forest/by the sea that we are dreaming of, but it should be a solid step towards it in the future.
We have been eyeing the market for a while, and there was this property we kept coming back to.
So this is what we in Norway would call a two family unit house. Typically, these are divided either horizontally (one flat ground floor, one flat second floor) or vertically (one on the right and one on the left). The only thing we are slightly sad about is that ours is a horizontally divided two unit house, but a shared staircase room gives us equal access to the basement (and our neighbour to the attic) without coming into each others private living quarters.
It is a large flat for its price (80 m2/860 square feet, plus office and several storage rooms) built in the 1950’s, large garden, shared with the downstairs neighbour, large amounts of storage in the basement and attic, plus an office space for Mr. Frugasaurus, a bedroom for us and a guest room which could double as a potential airbnb income stream when we don’t have family and friends visiting. Add to that a balcony, a fireplace and a generous living room, and you’ve got what we would consider a very suitable house for our lifestyle at a very reasonably priced deal for the city we are living in. It is also in a quiet neighbourhood with “only” two buses an hour. But neither Mr. Frugasaurus nor myself uses the bus a lot, so we figure we can live by a schedule once in a while for the sake of this place.
It is also twice as big as our current flat, plus a large (for the city) garden (1585 m2/17 000 square feet or 0.4 acres shared with the downstairs neighbour) with actual sun where we can grow vegetables and plant fruit trees! It is also in a desirable area of the city, so it is very unlikely it’ll fall in price over the years we own it until we find our forever home and sell it, unless something serious happens to the economy.
It is also smack in the middle between work and my best friend M at 15-20 minutes to each of them by bike in either direction. Perfect!
Well, to any attentive house watcher, I haven’t mentioned the bathroom at all. That is because the two seperate rooms (one tiny toilet room and one larger bathroom) are old and in need of some work. Luckily for us, there was no visible mold or water damage. So with proper airing after each shower, we are counting on the rooms to stay structurally sound until we can save up enough money to upgrade them (and upgrade the value when we sell it at the same time).
The other thing that probably scared other potential buyers away was the power supply. With old threadlocker fuses and a malfunctioning electric line to the toilet, can you say fire hazard?
But a quick call to a reputable electrician assured us that upgrading from threadlocker fuses to modern automatic fuses would only set us back 15 000 NOK ($1800), plus probably a couple thousand NOK more to locate the problem with the toilet electricity and fix it. Which is at least as much as we’ll save on living in the place for about a year. We have already booked him to come fix it within our first week of officially holding the keys to the place.
2 300 000 NOK ($280 000). Well under the listing price of 2 359 000 NOK ($287 000), which had already been reduced from over 2 450 000 NOK ($300 000) it was originally valued at. Which can only be considered a very solid deal for our city, the area and not least the sheer size of the living area (plus garden!! Have I mentioned the garden?).
Of course, we know the rent vs buy debate has been going on since back in the dark ages before the internet, we are not going to reiterate it or even take a stance. The only thing we will say is: It is twice the size of our current flat and: The math works out for us.
So let’s pull out some numbers. Or, as hard as they can be when we haven’t even packed a single box yet (moving in date is set to the end of November).
Now, as a frugal couple with a high savings rate, it was obvious to us that we wanted a term loan. This raised a bemused (and I like to think impressed and/or agreeing) eyebrow with our bank advisor, who let us know that a staggering 97 % of their mortgages were amortized loans.
With term loans, you are paying the same principal payment every month (unless you pay extra), with the interest tacked on top. That means you pay more in the beginning, but gradually less as your total loan and thus the interest is reduced. This is the cheapest kind of loan over the full lenght of the loan, but is more expensive to begin with, which is probably why so many people are avoiding it.
With amortized loans, on the other hand, you pay the same amount every month, but drastically less goes to the principal payment in the beginning, when the total and interest is higher. As far as I know, and interestingly, the mortgage is the only loan where the customer gets to choose whether they want a term loan or an amortized loan, at least in Norway and to my knowledge.
Both of these types of loans are still affected by a rise of interest though, obviously. We are planning on hitting the mortgage hard in the beginning to get the monthly payment down under 10 000 NOK ($1230), and then we’ll keep our payments at least as high as 10k to hit the principal even faster.
9 500 NOK ($1150). This includes heating and wifi, but not electricity, which is another 400 NOK ($50) in summer and 800 NOK ($100) in winter.
Sum: An average of around 10 000 NOK ($1230)
Mortgage: 10 656 NOK ($1300) the first month, of which 6 389 NOK ($780) is the principal and 4 267 NOK ($520)is interest (2.2% at the time we are signing the contract, 2018). If we only follow the plan and don’t pay anything extra, the interest payment will still go down by an average of slightly over 10 NOK per month (almost $2). Of course that is not a whole lot of money, but we are planning on overpaying at least a little on the regular, so that number will be adding up as we go.
Then, of course, come all the extra costs related to owning a house, averaged to per month rates:
Property taxes: 1100 NOK ($120)
Insurance 500 NOK ($55)
For electricity, we are assuming an extra 1000 NOK ($110) per month at the very, very most, even in winter.
Wifi: 400 NOK ($50)
And then there’s firewood, but since we’re frugal fellows and people give away trees they’ve chopped down or used pallets often, we might be able to score a deal with that.
So if we assume that the principal payment can be considered “forced savings” and not an expense in the same way as the others, the sum of interest and the other expenses adds up to a total of around 7 500-8 000 NOK ($920-980) per month at the very most.
+ maybe income from Airbnb, if we figure out that we like it and it is worth the effort.
Then there’s of course the occasional bucket of paint, chimney sweep, municipal bills which are hard to guess in advance (but it won’t be more than 500 NOK or $55 per month), and other odds and ends that will come tumbling down on our unsuspecting and inexperienced heads.
But we are getting valuable experience in owning and maintaining a home, which will for sure come in handy when we find our forever home, which will not unlikely be a bit of a project and have several challenges related to it. It’ll be good to have “wet our feet” before diving in so to speak with a more modest project, so we feel confident we can take on a bigger project related to a single unit house which might have outbuildings in need of additional maintenance.
Plus, the added office means freelancing Mr. Frugasaurus will get his own space associated with work, and I will get my own desk back and a separate corner in the living room close to the kitchen. There are also doors between each room, which we value greatly from an energy/heating savings perspective.
Of course, this also means my brief time of being in positive net worth since August will sadly plummet back in the red again, but it’ll be worth it!
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