Should I downsize to become mortgage free sooner?

Lambo123

I currently have a £200k mortgage on a house that is worth approx £400k. We have an interest-only mortgage - When we bought the property we had a healthy income for the 2 of us and intended to overpay the mortgage to pay it off. However, then 2 babies came along and changed our financial circumstances significantly! We aren't paying anything off the mortgage, just the interest-only repayments (which we can comfortably afford). In the near future, we hope to be able to steadily start paying off some of the mortgage, but paying off a £200k mortgage feels a long way off now that our income is much lower than it used to be. However, our current house is a desirable period property which is in high demand and is accruing in value nicely (and should continue to do so).

Does it make more financial sense to try and downsize our property in terms of value so that we have a much smaller mortgage which we can repay much sooner? Even though the downsized property would have much lesser potential for capital growth as our current property?

For example, we could move to a much less fancy house and be a little less comfortable in terms of space and facilities - and could probably downsize to a house worth £250-300k in our local area.

Or are we better off staying put in our current house, accepting that we're only paying the interest on our mortgage, but in the knowing that the house has good potential for capital growth?

My partner and I disagree on this, hence why I'm throwing it out there for some more opinions

Thanks in advance for any input!

edinburgher

The fact that you're gambling on house price appreciation (not accrual, real difference there) and 'hope' suggests to me that you need to revisit your figures, being brutally honest with yourself. It doesn't sound like you can afford your current home.

newgirly

Hi, it depends on many things, your age? can you really make no overpayments at all? Have you been on a mortgage calculator to see what payments you could be making to clear in term (or an extended term if possible?)

Is the house dearer just because it's a period one or is it more suitable to your long term needs, ie. If you move will you need to extend in the future , are schools better?

Do you live a lifestyle that can be cut back to make overpayments and if so are you willing to do that? Or up your income?

If not then it sounds like ed is right and you can't afford to live there, in which case you can move now for peace of mind or hang on a few years in the hope of a bit more capital appreciation and then downsize, which personally I would find harder as you and the kids will be even more attached.

Best of luck!

freshcotton

This would completely depend on your income.

I personally would feel very uncomfortable having an interest only mortgage and if you do decide to stay where you are, you should consider making a monthly amount towards the capital (or have in place an alternative provision).

Of course, as I am sure you have noted, interest rates will rise so that is also an important factor.

What would I do? Short answer is that I would downsize and enjoy a simpler life and stop paying interest to a bank as soon as possible. There is nothing wrong with living in a smaller house, in fact you could argue its more ethical too.

SueP19

As per the other posters

On the info given there are too many variables

On the facts given,
House value £400,000
Mortgage £200,00
Net worth £200,000

New house £250,000
Deposit £200,000

New mortgage £60-£70k

Assuming you are young, your children are pre 5 and it's your OH that doesn't want to move

£200,000 is a lot to be on interest only and not paying anything, before you know it 10 years will have rolled by, you say you can comfortably afford the repayments but if that is the case and it is comfortable then why are you not paying any capital off, do you need to look deeply at your lifestyle. Kids are really expensive and this increases in time, even after they leave.

Try adding your mortgage to this first and then adding a capital repayment to see how much you would need to over pay before you make any decisions

http://www.whatsthecost.com/snowball.aspx

From a personal psychological point, if you keep the house it could be a long hard road that you will take. Being on the poverty line for a long time seriously affects your health and mental well being.

Best of luck

Teacher2

I'd say, that for your long term needs: economic, social and personal, you should keep the house if you can comfortably afford the repayments. It will give you capital growth and while you can easily downsize now you might not be able to 'jump the gap' to regain a larger, more desirable property later should you want to and your financial circumstances improve. Your children need time and attention now but when they are in full time education you can think about working full or part time again. This will come sooner than you think and you can direct some, most or all of this extra income to paying off the capital owed on your mortgage.

Luckyinlife

If you can afford the place you got comfortably enough stay there

I can see why youd like to downsize tho as it would properly change your financial life youd have a lot more money to yourself and less bills

Both situations are great if you ask me tho :]

Lambo123

Thanks a lot for your reply newgirly.

To answer your questions...
I'm 35.
We're unable to make overpayments for the next 12 months or so due to other financial commitments, and a credit card to pay off.
Our current house is dearer because it's a period property (in higher demand in a town with lots of new-builds) and it is sizeable for our needs.
Yes, we could likely cut back on lifestyle a little to make over payments. But I'm the only breadwinner for a family of 4 so we already monitor outgoings carefully.

Lambo123

Thanks very much for your reply SueP19.

To answer your questions... Your assumptions are all correct...
I'm young-ish (35), my children are both under 5 (not at school yet), and yes it's my OH who doesn't want to move. She's the full time carer for the children, and I'm the full time worker to earn the money.

I will use the link you provided - thank you.