Stretching yourself with a mortgage; is it worth it?

ginvzt

blizeH wrote: »

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

Right, so you are thinking of buying either £100k +deposit or £200k+deposit house?

morg_monster

well isn't it all down to the value you personally place on a nicer house? if it is not much, then go with option B.
for us (new FTBs), yes we could buy (a) a 2 bed flat for say £150k or (b) a 3 bed house for £250k. Both would do us fine for the next few years. Since we can well afford the repayments on (b), we'll go for that option, as we value having more space, a garden, living in a nicer area, etc etc; even aside from the fact that it'll be suitable for us for a bit longer.

If you can afford both options, it's really a personal decision on how you value the things you'll be missing out on with option b.

opinions4u

Always live within your means, and build a contingency in to your budget that will allow you to afford what you've got if (1) your income drops or (2) your cost if living rises.

Don't confuse your circumstances with long term maths.

Theory is no good to you when your costs exceed your income.

Rockporkchop

blizeH wrote: »

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.

You wouldn't be saving yourself £800 p/m in mortgage costs for the whole period though. As you gradually pay off the capital the mortgage payment reduces, so at a rate of 5% you would be paying back nearer £175k on a £100k mortgage. If you were able to pay £800 every month you would be able to knock about 10 years and about £30k off the mortgage.

If you are thinking of buying, don't go for something you would have to move from in the future, just in case your circumstances or the market change. If you buy a cheaper, smaller place and have to upgrade, don't forget to factor in moving costs and fees, which are quite considerable.

getmore4less

blizeH wrote: »

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)

the total cost and the saving before interest should be the same.

happybroker

morg monster has hit the nail on the head! It's more emotive than trying to "make this financially viable".

Buying a house costs what it costs (over 25 years roughly double what you borrowed) but if it's the house you really really want then you have to decide if it's worth it to you personally.

olias

The other point is the money you would 'save' getting a smaller mortgage you would fritter away on living expenses. Anyone who says they would diligently put the difference into a savings account every month without fail for 25 years is kidding themselves.

Olias

getmore4less

One advantage of getting the bigger place is that it can jump a step on the ladder and avoid a move which is expensive.

Making the larger place work by getting lodgers is a sensible option, a sort of BTL that way the extra bit pays for itself to you acualy need it

Joe_Bloggs

If you borrow money with a repayment mortgage for 25 years at a rate of 6.363% then you will pay twice what you borrowed. Thus borrow £100,000 eventually pay back £200,000.

Saving for a deposit is a financial stress test. Perhaps the best time to do this is when you are living with your parents. Saving will take longer if you have to pay market rates for rented accommodation.

If you have to save for a deposit then you get to realise the benefit of interest, even paying tax on it. This interest is paid by those who are borrowing money. If you are going to borrow money then it helps to do it at the lowest interest rate. You can qualify for low rates with a large deposit,say 25% plus. A clean credit record is essential.

If you could get a £100,000 25 year mortgage at 4% and make overpayments to take the monthly payments to £800 then you would be mortgage free in 13.5 years and only pay £29.5K in interest

J_B.

RobertoMoir

blizeH wrote: »

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.

And we've seen how much the "houseprices are guaranteed to rise no matter what" schtick is working out for some people lately.

blizeH wrote: »

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.

Why are you talking about this additional money anyway? If you find a house you love and can afford, buy it. If you don't find one you love, or you can't afford it, don't buy one. If you look at a house that costs £100k more than the other alternatives you are considering, do you really love it £100k more than those alternatives? Will you continue to love it that much so if your repayments increase sharply and you're stuck in it eating beans on toast for nearly every meal because your entertainment budget is shot and you can't afford to go out much?

blizeH wrote: »

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)

I would be tempted by not spending £100k that I didn't have to spend, too.