Often times we have heard the mantra "rent money is dead money" repeated. It seems to be most often used when people explain why they are willing to pay far more in monthly mortgage repayments for a house than they would have for monthly rental payments. Since it is a powerful, and for many people, persuasive argument, it is necessary to look at it in some detail.

First of all, we need to look at what is meant by "dead money". For the purposes of this argument, I shall define dead money as money from which you derive no benefit or utility. Throwing a €50 note into the fire is dead money (though as heating methods go it doesn't compare too badly with rising oil prices). Loss of value in an investment, on a purely financial level, can also be dead money.

But lets look at what happens when you pay rent to your landlord. For that cost, you get a roof over your head, repairs are carried out to any broken or worn out utilities, and in some cases utility expenses may be covered. That 'dead money' in fact enables you to live your life with a modicum of comfort and security. If you disagree, ask the homeless guy begging for change on the street. Another way of looking at it is to consider the house you are renting as a commodity from which you are benefiting. A commodity like food or oil. When you fill your car with petrol and drive it around, is the money you spent 'dead' because you'll have used it up? Or that food purchase because you've consumed it? No. Instead everyone will have their cake and eat it.

Let us compare this "dead rent" then to the interest you can expect to pay on a mortgage. Interest is the 'rent' you pay to the bank in order to get the loan from them, the capital amount of which also needs to be repaid. When comparing the bank rent to the landlord rent in the current market, we usually see that the bank rent is far higher. So what is the difference? In both cases someone else owns the property (the bank or the private landlord). At the end of the mortgage you own the house, but only by paying the capital sum of the loan back as well as the interest and having indebted yourself for over a generation. At the end of a similar rental period, you don't own the house, but the difference saved would cover the full purchase price of the house, even more so when you include the interest you earn on that saving.

Remember.

• If you get a mortgage for 100,000 you do not pay the bank back 100,000. You pay back 200,000.
• In the current market rent is half the price of a mortgage on the same property.
• Rent and save the extra money you would have spent on the mortgage.
• Watch property prices fall and save.
• When property prices fall to reasonable levels you can use your savings to reduce your mortgage to less than 20 years.