Downsize to be mortgage free ?

paprichaat

I have a major decision to make. I have a big mortgage £225k costing me £1500 per month , with £185k on a repayment basis. Its on a fix rate of 4.5% until Jan 08. The mortgage is soaking up around 40 % of our take home income and we have little cash to spare after living expenses. The house is worth around £525k.

But I am thinking of sparing myself from the burden of the mortgage (which has 17 yrs to run) by downsizing to a houseworth around £325k which, if I sell my house at the right price I can almost by for cash....if not a tiny mortgage.

I am also scared stiff of the potential impact when we come out of the fixed rate.

Is it a no brainer?

Ystrad_Lad

It depends on your view of the future.

Has anything changed since you took the mortgage out? Please don't say that you didn't expect the interest rate to go up.

paprichaat

Not much has changed except day-to-day expenses are increasing beyond my wage rise, and with children ages 8 and 10 requiring us to spend fortunes on out-of-school activities and the like we are really getting stretched.

I was a great believer in the "go for as bigger house you can afford" approach a few years back...but as I dont see my income rising to make life easier, then I guess you could say I gambled and am paying the price. I am not able to save or even over-pay on the existing mortgage, so it looks like I'll be a slave to a monster of my own creation unless I take action.

nellis10

We're hoping to do something similar. We're selling our house and hoping to get something slightly smaller and thereby reducing the mortgage - which isn't that big, but we figure that we'd rather be mortgage free (or at least a much smaller mortgage).

Ystrad_Lad

It may be a monster but it'll be carrying a pot of gold - to mix a few metaphors!

IMHO there is no right answer, it depends what you want from life. You can always lock in to another fixed rate for a few years so you will be able to predict your outgoings.

Joscar

Even if you get a good fixed rate after Jan 2008, your monthly finances will be stretched even more than they are now. If you and your family can live in a smaller house with out feeling too compromised then I would downsize. The extra disposable income after the repayments of the comparatively small mortgage will make you feel much better off.

Alternatively you could compromise, downsize to a property around £400K, have a manageable mortgage and a bit more room for the family, the compromise has to suit you your family's lifestyle, but staying where you are with a new int rate next January would be a very scary option

Bestthingsinlifearefree

It is the trade off that you need to weigh up i.e the impact (if any)of living in a smaller house versus the benefit of being mortgage free / financially secure and having free income to improve your quality of life in other areas.

Given the choice on the info you have given. I would go for down size small / mortgage free option and then use half of the cash "saved" to invest for the future e.g pension / savings and half to enjoy a better quality of life e.g more holidays / nicer car / work less hours or whatever your thing is.

You are doing the right thing by looking at your options now rather than waiting till things get to tight and reacting to late to changing financial circumstances (i.e coming off the fixed rate).

Good luck.

paprichaat

Thank you all for your responses. On balance I dont think downsizing will impact my family in any negative way. In fact having more money to save and more money to spend will have a positive impact on family life.

I'm excited at the prospect of such financial freedom. I have dreamt of the power of having sunstantial cash savings rather than begging for loans as I ahve done over the past 10 years.