Is it better to be mortgage free or buy bigger?

freeisgood

For a "forever home"

.......Do you think it is better value to buy a home outright,(cash) or buy bigger (eg 25% more expensive, topping up with a mortgage) the most we could afford?

Hope that makes some sort of sense.

Would love the peace of mind to buy something smaller outright, but also would prefer something bigger, might increase more in value long term?

Thrugelmir

Borrow as little as you can and repay over the shortest possible term.

Few people take into account the amount of interest they pay over their mortgage term.

CFC

It comes down to personal preference.
Do you prefer the safety of knowing your home is owned, or does the prospect of having something a little bigger seem worth taking out a mortgage for, especially as you don't intend to move again.
Nobody can make that decision but yourself. Don't buy a home based on it being an investment. Make the decision based on living in it.

pinkteapot

I'll make the opposite case to Thrugelmir.

We've just accepted an offer on our £250k house which, if we stayed in it, would leave us mortgage free in two years if we keep up our current overpayments.

We've had our offer accepted on a £470k house. It's our dream house.

We're in our early 30s and currently overpaying the mortgage by £1,750 per month. In the new house we will still be able to overpay by £800 per month which will reduce the interest paid over the life of the mortgage.

My view is that our new house will always be worth much more than a smaller retirement property so we'll be able to release equity at retirement by downsizing. If we didn't buy this, I'd have to spend a lot of time researching alternative investments for the money we're using on overpayments as cash savings are useless in the long term. Historically though, over the long term (decades) stock markets have performed better than housing so if you're purely looking at the finances you're better off going mortgage free and investing in other things. Plus of course diversification is always good.

Retirement planning isn't the main reason we're moving though. We want more space, the house is in a better location, etc. In short, we want it and are comfortable we can afford it accounting for lots of future interest rate hikes so are going for it. It's in a very popular area so if life threw a major disaster at us we could always sell, even if the market has fallen as we'll have plenty of equity from the outset.

We've only been in our house three years and I regret being so conservative with the spend when we bought. We could have saved a set of buying/selling costs and already have made inroads into the larger mortgage.

We are both in relatively secure jobs in professions that mean we can find new jobs relatively quickly if need be, and when we buy we'll be keeping almost a year's living costs as savings for a good emergency buffer.

Do it sensibly and with lots of budget forecasts and it's not too scary. Though I can't get my head around "almost half a million" at all!!

CFC is right though - if you're someone who will worry about the mortgage then go mortgage-free instead. Comes down to your attitude to risk which is completely personal to you. Also to your own circumstances, job security/prospects, age, etc etc etc.! Edited to say that I do agree with Prothet of Doom below and we're not borrowing anywhere near the max we could. I did that in my first flat and it was terrifying!

Prothet_of_Doom

The Gap between my current home, which is a small 3 bed semi (with an additioanl massive 4th bedroom in the loft) with a shared driveway, a small concrete garage, and a garden that is very small, and a very tiny kitchen (and no room to extend without making the garden into a yard), and my dream home in this town would be about the same as the value of current home. Hence having paid off my mortgage I'd have to take on a mortgage of £180K. Given that I now work freelance, I'm not prepared to take on that financial risk.
We had the opportunity about 9 years ago, when the gap was about £90K and we would have needed a mortgage of about £120K, but 'things' happened such as wife's ill-health (ME), and then my job being insecure, and then eventually redundancy.

I know people who have opted to take on the max that would be loaned to them, to get a really really special house, but they have spent 5 years on the brink of loosing it all, due to income dropping (self employed) and negative equity creeping in. At one point they had interest per month at 5 times what was coming in for about 4 months, and maxed out all credit cards. But to on lookers, they were living the dream.

I don't think I could live with that level of uncertainty.

dimbo61

I love watching Grand designs but many of the dream properties are huge and the mortgage debts Massive.
If you have 4/5/6 kids and live in a shoe box then buy a bigger house
If it is your dream home and you can afford it then think long term security 5 year fix or longer !

moneyistooshorttomention

If its going to be a forever home, then does it really matter that much whether it increases in value? Or do you just mean "forever until retirement and then downsize"? Bear in mind there are a lot of other people who also plan on downsizing and therefore a sizeable group of sellers competing for buyers...

I would say "It depends entirely on just how secure your jobs are". As someone well into middle age I took the decision to stretch as much as I possibly could and I was correct to do so in the event (though even stretching to the max. only got me an average "starter house" in an average area back then). I also bought back then knowing that, at that point in time, the Government would cover full mortgage interest costs from Day 1 to Day End of Time if I ever became unemployed again (which I didn't in the event, but I had that "peace of mind" they would if need be). That is no longer the case and there have been huge cuts in mortgage interest payable in the event of job loss:(.

These days, I very much doubt I'd "stretch for it" in current economic circumstances personally.

I tend to think its wise for anyone these days to "safeguard" themselves as best they possibly can, in order to protect their finances as best possible against any "nonsense" Society/The Government gets up to that could affect their own personal finances.

botchjob

Horses for courses. We have a pretty whopping mortgage (£275k, yikes!) but allowed us to buy a nice family home in an up-and-coming area of London 3 years ago for £450k. The area has up-and-come in those 3 years and it’s now probably worth £650k+. In terms of just the numbers, that obviously a bigger increase than if we had bought a smaller property with less of a mortgage. There is also the point that we’re not going to outgrow the house any time soon, so won’t have the huge expense of having to move unless we really want to. So in our case, having a bigger mortgage made good financial sense.

phoebe1989seb

We also used to have a £200k+ mortgage on our large *forever* home, but as DH wanted to go freelance and we realised that we could still have a decent sized house (2000-2500 sq ft rather than 3500 sq ft), we could sell up, downsize a little and be mortgage free.

That was six years ago when we were in our very early forties. We sold our *forever* home for £460k more than we'd paid ten years previously

Although we've moved again since our initial downsize (to something larger, lol!) and realise that first move was a huge mistake location-wise, we haven't looked back or regretted it on the financial side. We've hopefully added value to our current house by extending etc and know that we only have to make enough money to pay the bills and eat each month.....although obviously we do make more so we can have some fun time off from renovations

Really it is down to your individual requirements/desires though - and I have to admit that whilst not missing the huge mortgage payments each month, we do both miss our *forever* home.......

Soleil_lune

Mortgage free!

Mrs_Z

freeisgood wrote: »

For a "forever home"

.......Do you think it is better value to buy a home outright,(cash) or buy bigger (eg 25% more expensive, topping up with a mortgage) the most we could afford?

Hope that makes some sort of sense.

Would love the peace of mind to buy something smaller outright, but also would prefer something bigger, might increase more in value long term?

Personally I don't think some mortgage debt hurts - how much is the question. Of course it depends very much on your personal circumstances (age, jobs, future aspirations, etc). If you can afford to buy your dream home in cash, then all well and good but savings rates are rubbish at the moment - so I'd rather buy a bigger house and use the spare cash paying off a mortgage debt rather than put it in the bank.