Net Worth calculation FI calculator how enter mortgage?

[kPat]

Hello,

I am Patrick from Germany.

These days I read a lot of Early Retirement, habits and the principles of FI. I did perform quite well in the past regarding the saving rate. But I lacked true knowledge of the principle that decreasing spending significantly causes more than just increased savings. I admit: I was consuming extremely living the good life as I thought it would be while saving at least 50% of my income in any time.

Finally I did understand that frugal living does liberate oneself from just consuming  and forces oneself to work for the self-defined goals to live a better life. These goals can be independent from money. Actually, most of my goals did not directly depend on money. In addition, I did talk to my wife and we both did finally setup goals for ourselves and we discussed them. This way we focus on goals mattering most to us.

However, I do have difficulties filling out the retirement calculators. We do have a three storage house and we are living in one apartment while renting the other ones. Taxes, mortgages etc. are already setup quite good.
But how should I define the net worth and savings of us? At the moment I just use the netto income and do not consider the investment at all. Any money received from the investment is reinvested to reduce the mortgage rate of the investments. So I see the investment as future source of income, since it now pays itself to generate real income after it is depth free or I feel secure enough to invest parts of it in ETF. This could be the case if interests stay low the next time I renew the mortgage contract.
Since we do have a mortgage on our apartment as well we do pay additional sums to our mortgage, if we have enough savings left for safety. Since the mortgage is only about 2.6 percent the investment does not have a high performance except a feel of safety. However, without our apartment we would need to pay for our rented apartment. So it also reduces our monthly costs. To give you a picture about the interest rate of our apartment: It is only 140 Euros per month, so far below than renting an apartment. The interest of the investment apartments are higher since the depth is high on these candidates. This makes much sense in tax declaration.

I do want to setup the calculator to get a true feeling about the real savings rate. So if you have ideas how to do it most appropriate, please help:

https://networthify.com/calculator/earlyretirement?income=57459&initialBalance=0&expenses=26431&annualPct=5&withdrawalRate=4

In the future we may use rented parts of apartments privately, so the investment may decrease slightly and we will also invest money to create new living area to rent. So before it is getting a bit more complex I would like to see reliable numbers.

Goal:
I would like to estimate how long it takes to
a) feel secure with current financial situation,
b)  feel secure with working up to 5h per week less
and finally c) how long it takes to become FI regarding a) and b)

Best Regards and I wish you success in getting FI!

Patrick

[BTDretire]

Hi Patrick,
 If I understand, you have a 2.6% mortgage rate, if that is correct, don't make additional payments, that is very cheap money. You can earn more by investing it. Every year inflation allows you to pay it off with EUROs worth less.
I reread your post, maybe I don't understand the mortgage contract. How long is it for. Why do you need to renew it?

   Many of us do not include our homes in our networh, because if we live in it, it is not something we can turn into income.
  Your situation is a little different, you could add the value of the two rental units to you networth, because they will
generate income.

[kPat]

Hi Qmavam,

there are some reulations about how much one is allowed to pay in maximum to reduce the mortgage in a year. If the year ends it is not allowed to pay the part from the previous year and the current year. It is only allowed to pay the extra part in the same year up to a maximum.
That is why I am paying the extra sum to reduce my mortgage. It is true that 2.6% is a low rate. However, I do pay by this rate as long as the contract is valid. The mortgage needs to be rediscussed after the time. So in about 8 years I have to pay the interest rate in that period of time. It depends on duration of the fix price etc.
As a conservative investor and the historic deep lending costs I expect higher interest rates in the future. If this is not the case, that would be perfect for me, but I expect worse scenarios to be safe.
That is why I am reducing the Debt with additional payments. If I would start buying only ETFs like a lot of people do in this forum, I could get problems when renewing the interest rates.
Consider an interst rate of about 10%, while stock market is down at the time being.
Then I would need to pay a high interest rate, or I would need to sell stocks in a bad period of time.

But you are right. I do want to invest in ETF on a monthly (minor) rate, too. But I do want to be sure, that I do not end in paying too high interest rates. Remember the rented apartments are fully financed for tax reasons. However, I take the risk for paying interest rate even for the investment.
In about 8 years I do know more and can increase buying ETF, depending how expensive it is to pay off the mortgage for the next interval of 10 years. House prices are hugh in germany, but the rents also. The rented apartments cost in total about 400.000 Euro. That is why I do want to reduce the Debt for safety reasons.

400.000 Euro with 2,6% interest rate is 867 Euro per month. I do get 1600 netto rent. But with a interest rate of e.g. 8% I would need to spend private money to pay even the interest rate. Since, I am already reinvesting the rent the Debt goes down automatically. But not fast enough to be really safe. So I am aiming to have a Debt of about 200.000 Euro in 8 years. Then I will get a good profit even with high interest rates. In a future situation with 8% I would off course pay additional money as much as possible to increase my earnings by reducing the Debt.
Since the monthly pay rate is constant in germany extra payments do also increase the part of paying of the Debt, so this helps in addition to reduce the Debt in the long term even more.
I am allowed to pay 5% of the total sum which is 20.000 Euro per year.

Calculation of the networth is complicated. If I do not consider the networh of the part we are living in, it creates also wrong assumptions of how long it does take to be FI. Our expenses are that low, since we are living in an apartment we do not need to pay for. However a part belongs to the bank, so I need to invest money to be in the situation not needing to pay a rent. This includes paying an interest and paying of the Debt. Lets assume we need 3 years to pay off our mortgage. That would mean, that we do not get any growing of networth in these years. But we would have bought a freeing from rent and a lower monthly sum and by that reduce the time to become FI, since our monthly costs are low.

Do we have german people here in the forum? I would like to get some advice with ETF. Vanguard or Blackrock seem to be very good for US.
I would need something designed for the german tax system. E.g. pay dividends and reinvest in a way, that the tax is paid for the earnings in the year the divident is paid. We do have 1602 Euro (2 persons) per year free for this kind of thing. Up to this sum no tax needs to be paid.

[arebelspy]

Do we have german people here in the forum?

Here you go:
http://forum.mrmoneymustache.com/mustachianism-around-the-web/mustachianism-applied-to-german-way-of-life-deutsche-mmm-ratschlage/

[sokoloff]

AS I understand it, most mortgages in Europe are adjustable rate (as opposed to the US, where the historical "norm/typical" mortgage is fixed rate), there is more incentive to pre-pay adjustable mortgages, especially those with caps on annual pre-payments than would be true in a fixed-rate case.

[havregryn]

AS I understand it, most mortgages in Europe are adjustable rate (as opposed to the US, where the historical "norm/typical" mortgage is fixed rate), there is more incentive to pre-pay adjustable mortgages, especially those with caps on annual pre-payments than would be true in a fixed-rate case.

In some parts of Europe fixed rates are a bit more common than in others but if you have a fixed rate you usually cannot prepay the mortgage without penalty. It seems to me here based on his figures he has an interest only mortgage.