Does having three kids worth a free house?

Does having three kids worth a free house?

Yes, dear reader, you have read it right. That’s my question. As many of you know, despite I live in Serbia I am a Hungarian guy and count Hungary as my homeland too. Thus, every sometimes, when I cheat on my low information diet I follow the news over there. Last week the Hungarian prime minister revealed a radical family support package as part of their action plan to prevent the demographic decrease.

I am not really involved in politics and have limited knowledge of economics so won’t go into any detailed analysis or debate about the political or economic background or rationality of this package. Instead, I thought it would be fun to play the “what if” game and run a thought experiment using the numbers which were the just presented. As the system is pretty complicated and has many restrictions for many situations I will only walk through an ideal use case.

Declaration

Let’s start with the following assumptions to sketch up the most ideal situation to take advantage of these benefits.

  • We have a newlywed couple and this is their first marriage.
  • The wife is in the middle of her twenties and has spent a little more than three years in the workforce.
  • They have no kids yet but the wife is already pregnant.
  • They have plans on having a family with three kids in the next ten years.
  • Both of them are employed and to make it simply they have no debt.
  • Even better if the wife has student loans, as in case of having three kids the loan could be forgiven.
  • They are renting currently but their biggest dream is to move into their own family home.

This is our basic setup, a very typical one I think.

Initialization

According to the newly presented information every young mother who agrees (don’t have to be pregnant or have kids already) to give birth in the following five years would be granted an interest-free general purpose personal loan of 10 million Hungarian forints (about $35.436).

Moreover, because of the Home Purchase Subsidy Scheme for Families, known by its Hungarian acronym “CSOK” they are eligible for another 10 million HUF (about $35.436) as a non-refundable grant in case they sign that they will have three kids in ten years (both giving birth an adopting is an option).

Because of the “CSOK” they are eligible for a government-supported mortgage of 15 million HUF (about $53.170) with a fixed 3% interest rate. The common mortgages on the market have an interest rate of about 5%. We pick a 20-year contract with a fixed interest rate throughout the whole period.

Our couple signs up for all these benefits and after searching diligently they find their dream home, a newly built turnkey house with all the necessary appliances included at the ticket price of 35 million HUF ( about $124.000). Maybe this sounds too low, but if you are not looking for a home in the capital area it is pretty realistic.

New Home

The first

They decide to use all the “free” money on the purchase and they happily move in. By the time the paybacks start to kick in it is about the time their first child is born. Thus the payback of the personal loan gets suspended for three years.

They only have to start paying back the 15 million mortgage which means a monthly payment of about $300. This beats the available rents in the area so they are already very happy. I am sure this would make even getting used to sleep-deprivation easier 🙂

Personal loan amount: 10 million (payback suspended for 3 years)

Mortgage amount: 15 million ($300 monthly payment)

The second

Fast forward two years, they paid back 25 monthly payments reducing the mortgage amount with about 2 million ($7500). They discover that the wife is expecting a baby again. Nine months later she gives birth to their second child.

Both their family and financial life gets enlightened. The personal loan payback gets suspended for another three years, moreover, the loan amount gets reduced by 30%.

Through another grant at the time of the birth of their second child 1 million HUF gets deducted from the mortgage amount.

Personal loan amount: 7 million (payback suspended for 3 years)

Mortgage amount: 12 million ($300 monthly payment)

The third

The kids are growing fast. Our couple is about to celebrate the fifth and second birthdays of their kids when they learn that they are expecting a baby again. Nine months later happiness is all over the place when their third cute and perfectly healthy baby sees the light of the sun.

The government is exceptionally happy too as the demographic numbers are getting better and better so they pour the last round of grants on them. The personal loan gets erased in its wholeness.

The 10 million grant is secured and they are getting another deduction on their mortgage amount. This time the amount is 4 million. Through the last two years they paid back 2 million again so this amount gets deducted from the remaining 10 million.

Personal loan amount: 0 (entirely forgiven)

Mortgage amount: 6 million ($300 monthly payment)

Three kids

Killing it

At this point, we can assume that if they were saving and investing in the past ten years they could kill the remaining mortgage in a blink of an eye. Same time the interest rate is pretty low so looking on just the numbers, it is probably a better idea to keep saving and investing and just paying off the mortgage in the next ten years using the proceeds.

Also worth mentioning that after living in the house for ten years they are allowed to sell it (capital gain tax-free), pay off the rest of the mortgage and cash out if they decide so. Taking a hypothetical 3% appreciation into account they could probably sell the home for about 47 million. Let’s deduct 6 million for killing the mortgage and another 1 million for the expenses. They will end up at 40 million HUFs, almost $142k in the bank versus the $36k they paid back.

Let’s ride

I have to add that a family of five has its needs. For example, one could be a car which is big enough to carry around all of them with their stuff. Luckily, the government got your back again.

For a family with three kids, they throw at you another non-refundable grant of 2.5 million HUFs in case you buy a brand new car which has at least seven seats. Let’s pick the cheapest solution and go with the not very appealing Dacia Lodgy. But hey, a car is a car, am I right? It gets you from point A to point B. Who cares how does it look like?

The list price for that monster is around 3.5 million HUFs. That means they only have to save up 1 million ($3.550) to have a brand new car. Sounds good, right?

Closing words

Of course, this is a best-case scenario. Most of the times life happen on the way. Still, it is a good example of how can one family kickstart their life by obtaining a $124k home for less than one-third of the ticket price and max out the benefits the government offers them legally.

You could say that “Yeah, sounds good, but those kids cost money too”. Well, that is true but you probably would not make such a choice based only on the benefits. Or at least I would not. So, I assume our lovely couple could afford to raise them anyway. One of the biggest expenses, education could be free in Hungary after all. Also, there are other grants a family could get but those are out of the scope of this already long post.

Hope you enjoyed this little thought experiment. Does your government offer something similar? Are they crazy? Would you take advantage of such benefits? Would it trick you into having more kids than you should have? What are your thoughts?

21 thoughts on “Does having three kids worth a free house?

  1. I can tell you this isn’t unique. Iceland also has something where they pay people under certain circumstances for kids. An aging population is only replaceable by procreation or immigration. It makes sense then that some sort of incentrive might be needed if long term stability were a concern.

    1. I agree and I guess Iceland is in an even worse situation with its small population. Having an incentive and some kind of support is normal in my opinion (or should be) just what they are doing now is a little bit above the average I think so that’s why I decided to play this little game with the numbers. Thanks for reading 🙂

  2. If you were going to have the kids anyway you might as well take the money.

    At the time my eldest was born the national government was paying a cash “baby bonus” in the region of $5000. That would have just about covered the cost of a giving birth in a private hospital… or bought a very nice big screen television.

    Hungary makes them look cheap by comparison!

    1. That’s a key point for me. Going for more kids just to get the money is wrong on so many levels. However, if you always wanted a big family but your main concern was the financial background, especially housing than this package comes handy.

      Even my country supports parents with some cash. The amount differs from municipality to municipality and depends on the number of children. To bring up a real-life example we receive €50 every month since our younger daughter born until she turns two. This covers at least half of our purely baby-related expenses each month. If you consider that there are many households where the average income is in the €250-500 range even this is nice support from the government.

      I think what goes on in Hungary currently is a little bit exceptional and we have to take it as is. It is neither a miracle solution for everything nor a total waste of money. My opinion is that the direction is good but if they would have put more thought into the creation of the system it could have been serving them even more. Thanks for your thoughts 😉

  3. It’s important to tell you, that if, for some reason you can’t have kids, or can’t have kids after the first one, you’re still on the hook for the loans.
    It could be a very painful experience, especially if you have a miscarriage.
    My GF and I have decided a while ago, to only have 1 kid, so that we could give them all our attention and still be in a financially secure place. Not sure if this will change after we FIRE, but i don’t think it will.
    My political opininons… well I’ll just keep them to myself, but I do think there are better ways to spend taxpayers’ money, that’ll improve the aging population here in Hungary. A nice post overall, though.

    1. You are totally right. That’s why I stated that the one I described is an optimal scenario and most of the times life comes in the way. I absolutely think that despite the grants you should take it as is, a loan and you should prepare for paying it back. If everything goes well you will get the benefits but that should not be the goal in the first place. Btw if you have medical proof that it was not your fault that the baby finally wasn’t born that matters. Unfortunately, I know that horrible situation you mentioned. If you are prepared for paying back the loan anyway then at least that will not make the things even worse.

      I always knew that I want at least one kid and then we will see. Then we decided that we could handle another one. Now we are pretty happy having them and for now, I think we can provide sufficient financial background and the needed attention to them. I don’t say that we won’t have a third baby but currently, I think it unlikely. Anyway if we will make a decision for that it will have nothing to do with politicians, governments or free money.

      I also did not add my political opinions to the post more than needed. In my opinion, the idea is good, but the implementation is not really well thought out. I agree that there could have been better ways of doing this but if I compare them to my other homeland… at least they are heading a direction and not running in circles. Thanks for stopping by 😉

      1. Agreed.
        It’s always good to read the experience of a fellow, who is in the same region but farther along in their FI progress. So, you know, keep up the great articles 🙂

    1. I cannot foretell how will I feel in ten or twenty years from now, but currently, my heart is full and my brain is tired 🙂 I am pretty sure if there would be a baby in da house I could not give her/him the well-deserved attention. Maybe in a couple of years from now when our older daughter will spend more time at school and our younger daughter will be bashing other kids in the nursery 🙂

  4. Oh boy, now half of the FI community with kids is going to move to Hungary! Mr HCF, here’s your chance to start a real FI community! Do you know a village that’s for sale?

    1. I wouldn’t mind, if it comes to that, I hope it’s near my current residence, I have a lot to learn from the greats 🙂

          1. Wow, thanks for the reminder, somehow it did not appear on my radar but just read it. The idea is fascinating and I have to admit that back in the time (before any financial involvement) I was daydreaming about winning the lottery and funding a hi-tech eco-village. Something like in the Eureka series just without the troubles 🙂 It is still a dream of mine, we will see if a lifetime will be enough.

    2. I am sure we could find one 😉
      Unfortunately, this sounds better than it is in real life. The package has a huge effect on the real estate market and there is a chance that the result won’t be as good as it is in theory. If you want to know what I mean check out the latest posts on kiszamolo.hu.

  5. I’m still shocked that part of it is loans. Interest free or not, some people could really get in trouble if it quest squandered.

    Here (Canada) the government gives parents up $6,500 (tax free) per kids per year (age 0-6) and $5,500 (7-17), so a parents can gets up to $99,500 per kid they have. That’s just money they give out. You can also qualify for additional childcare subsidies (I used to qualify for 2k per month, so 24k a year) and the government matches 20-40% of what you save for your kid education.

    All in all, I wouldn’t be surprise if you can get 150-180k per kid. It’s crazy.

  6. Nice detailed and laid out thought experiment. I’ve shared your post on the Budapest on FIRE facebook page. I’m sure all readers will gain value from it

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