Stretching yourself with a mortgage; is it worth it?

blizeH

Guys, sorry for posting here but I'm lost and my grasp of mortgages is an epic fail. I'm going to use an example using rounded and simple figures to try and make it easy to understand where I'm coming from... When dealing with mortgages, and pushing yourself, let's say you take out £100k that you wouldn't otherwise need.

a) You take out the £100k. As a massively rough estimate, over the course of the mortgage you would end up paying back £200k, so you're relying on the house price going up by £100k to make this financially viable.

b) You don't take out the £100k. You save yourself around £800 p/m in mortgage costs which adds up to a whopping £240k over the average mortgage length, or rather £415,792.75 assuming an interest rate of 4% on your savings.

I know my logic is wrong, it must be - but can some clever fellow please explain why? Because I'm really struggling to see the big picture here I think, which is why I'm really tempted to go with option b)

begbeer

What you seem to have forgotton is that if you do not buy your own house, you will hae to live with mum and dad for the rest of your life or pay rent, and at the end you have paid out lots of money for no return

blizeH

Ehhh, I didn't mean not buying a house. I'm talking about buying a cheaper house or a more expensive one.

ginvzt

Where do you live in the meantime? You have to pay rent, so you are not just saving £800, it is £800 - rent...

ginvzt

blizeH wrote: »

Ehhh, I didn't mean not buying a house. I'm talking about buying a cheaper house or a more expensive one.

Then you have to take the difference between 2 mortgages, not the cost of more expensive mortgage. Which again, is not going to be £800...

blizeH

Think I'm explaining myself quite poorly ehre

I'm 23 and still live with my parents for now, I'm weighing up the options between option a) and b) - using the maths mentioned in the original post, it seems to make a lot more sense to go with b), but have I worked it out correctly?

Euphoria1z

if you take option b, where you going to be living? with your parents? or does option A and option B include buying a house ?

blizeH

In a house that I'd buy, but one that's not as good as option a)

ginvzt

So, what is the mortgage for house b) and what would be a mortgage for house a) ? How much deposit would you have? I can't believe, that the difference in mortgage would be £800, unless your 'better' house is a mansion!

Cannon_Fodder

The hope is, and the old "truth" was, that house price inflation would increase the value of the bigger house by more than the extra amount you have paid for it.

i.e. Average interest rate between 6% and 8% over the life of a mortgage, versus House Price Inflation of 10% to 15% per annum - sometimes more, 200%+ in 10 years before the crash hit...

So you get to sell the bigger house for more than the extra you paid, if you want to downsize at retirement, or upon death to share among your beneficiaries...

Whether, in reality, you want to downsize becomes an issue.

Whether there is non-monetary value in securing the "dream" home ahead of retirement, so you aren't stuck in somewhere "ordinary" for your last 30 years, will be a personal choice.

Or, indeed, securing a dream home as early in your life as possible, to spend 60+ years enjoying it, will have a value to an individual.

Its an interesting debate, where to draw the line. One that I think a lot of the population have lost sight of, as evidenced by the hoards who have mortgaged themselved to the hilt in the pursuit of a wonderful house, but then have to work all the hours available to pay for it, so never get to enjoy the house...

Its part of "live to work" versus "work to live" debate. It appears that for some people they think they are not "living to the full" without have that "dream house, 4x4, 50" tv, etc etc", but then they have to work harder to pay for those lifestyle choices. Throw in the 4-hour commutes that some people do, and they have definitely sight of their original goal, "to live"...

blizeH

I'm just assuming if you had a £100k mortgage you'd pay back around £800p/m