Moneys worth in the future

I

itsallwrong

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Where or how would you calculate the value of money in the future?

For example in 1980, 20IR might have bought you most of your weekly shopping for an average family.
Today in 2013 it would get say a 5th of the shopping.

This question is linked to the mortgage warehousing options being offered by
the banks.
If someone parks €50,000 until the end of the mortgage, what will if actually be worth in today's money?
 
You have to discount inflation for each year of the term.

E.g. €50,000 today, average rate of inflation of 2.5%, 20 year term

It would be worth the equivalent of €30,134 today
 
Hi Itsallwrong

This is not a good way to look at a split mortgage

Check out this Key Post

How to analyse an offer of a split mortgage

I would be interested in your feedback on this post. (Daftpunk raised the issue of inflation, and I have answered it in this post )

In simple terms, if you owe a bank €300k @ 4.5% and they warehouse €100k @ 0%, then they are reducing the interest from €13,500 to €9,000 a debt write down of €4,500 a year.

As they are also reducing your repayments, it's a very good deal.

Brendan
 
Agree with Brendan.
Means you save 4,500 each year.(a good deal).

the (real) value of this warehoused K100 will be a lot less in real terms to the Bank in 20 years time and conversely you will (save) because of the drop in real value.
You can get caught up in future value of todays K100 but I suggest do not.
Just ask yourself what would k100 have bought you in 1993.
In 1993 k100 would have bought 3 houses in Letterkenny.
So you have (saved) a lot, kept your home, reduced your payments to an affordable level.
Good Deal.
 
Or in even simpler terms, they are giving you an interest free loan of €100k for 20 years.

That is a good deal.

Brendan
 
I find knowing how much the value looming over the house will devalue a help to accept a warehouse offer.
Otherwise the person will keep focused on the today value of what they are
warehousing. €100k hanging over you at the end of your loan might terrify some folk.
If they get told that it is actually only going to be worth/cost them €60k, it makes it easier to accept the deal.

I know you say do not focus on the end of the loan and the warehoused amount but I think it prudent to look at worse case.
Mortgage term is finished and you have no means to pay the warehouse
except sell.

The appreciation of the house value will also help.
 
No, it's not, but so what?

It's a good deal to get an interest-free loan for one year. It's a better deal to get it for 20 years.

Hopefully, you won't need it that long because your earnings will recover.

Brendan
 
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