Should I buy a second home or pay off my mortgage early?

Andrew_Ryan_89

Hi guys,

I am 27, married with a child on the way. My wife and I purchased our first home December last year and took out a 95% mortgage which has left the monthly payments quite high but, because of our jobs we are quite comfortable and manage to save £700-£1,000 every month. My life goal is to be mortgage free by the age of 45 and on my current mortgage, if I made a yearly overpayment of £5k I would complete my mortgage 8 years early and will be 43.

I was having this discussion with a couple of friends and they were kind of shocked, asking why don't I invest it in property instead? Well, personally I have no desire to be mega rich, I'm happy with comfortable. Also, I was to be able to semi-retire by the time I am 45. In other words, not having to have a high pressured job to get me by. In addition, I am not a big fan of leaving myself exposed. All major decisions I always ask myself what will be the worst case scenario. If I got another property and had a tenant that refused to pay rent, smashed up the house or it was left unoccupied for months and I had to pay two mortgages. Just would rather not have the stress.

Then again. When I am retired my monthly expenses (as they stand now), minus the mortgage are £500. It would be great to build up a passive income so I can genuinely retire as apposed to getting by on a low pressured job. Furthermore, I house that I am in, though I love the location and the actual house, I want at least two children and it's not the largest of places only being a 2-bed. Potential for loft extension maybe, but would that money be better invested in a second home then renting out the one I am in?

If so, than my focus needs to be saving cash and not paying of the mortgage debt.

What's both you personal opinion and your opinion on the above?

jimjames

Why would you buy another house rather than invest in S&S ISA or pension instead? Or are you already doing that? Adding more property isn't diversifying, so restricting your choice to those 2 options seems odd. Where does your £1000 pm go now?

Caveat - if you're looking to move or remortgage then getting LTV value down might be a higher priority

Ray_Singh-Blue

One house, one spouse.

bigadaj

Pied a terre, m!nage a trois.

Thrugelmir

Andrew_Ryan_89 wrote: »

If I got another property and had a tenant that refused to pay rent, smashed up the house or it was left unoccupied for months and I had to pay two mortgages. Just would rather not have the stress.

It would be great to build up a passive income so I can genuinely retire as apposed to getting by on a low pressured job.

Contradictory statements. Letting is for intents and purposes a business. Don't bank on it being passive.

cns06

Personally I would get that 95% reduced way down first before you look at other property. I would also look at your future long and hard as children will eat your grand a month spare cash (literally). Of course I have no idea of your future income, so assuming which is never good but just off what you are saying now I think you might be better off building some savings (again assuming you have none) and also getting that 95% reduced down.

Also, BTL is not all it used to be. Depending where you are in the country rents are not fantastic and the new tax rules will eat into the profits. Deposits are also quite high. Defo a very long term investment if doing as a true BTL, IMVHO.

For me priority would be to save at least 6 if not 12 months salary for rainy day fund first. Then look at overpayments on mortgage second. Its unlikely you will be getting a good interest rate on 95% so its going to be a "better return" at present vs what you might get back on savings. Then perhaps remortgage once you are under 70% LTV as that's when discounts tend to kick in better?

Also what is your position re pension and also life insurance. I spend (joint) over £100 a month on life insurance alone and I have no kids. Pension, well that's another story but again its a lot of money.

Like yourself I hope to retire early (50 ish) and we bought our first house 12 years ago. We have managed to pay off about 70% of the mortgage in that time, so doing well. We now have tenants in that house and hope to have it paid off in 3 years. After that the rental income will go directly into overpaying our new mortgage which should in theory pay it off in about 9-10 years. That should link in nicely as it will line up with that 50 years old target. That's our plan anyway, which is kind of what you are saying you are thinking about doing... I think anyway.

grey_gym_sock

bigadaj wrote: »

Pied a terre, m!nage a trois.

parlez-vous franglais?

je voudrai acheter une maison ... de la repute malade.

bigadaj

grey_gym_sock wrote: »

parlez-vous franglais?

je voudrai acheter une maison ... de la repute malade.

Well it's a very profitable area to be in.

Dird

Ray_Singh-Blue wrote: »

One house, one spouse.

Not when sharia replaces common law. More wives than pairs of underwear

bigadaj

Dird wrote: »

Not when sharia replaces common law. More wives than pairs of underwear

Look at you showing off with your two pairs of underpants.

Dird

bigadaj wrote: »

Look at you showing off with your two pairs of underpants.

Three! :cool: a wash, a wear & a backup in case the leaky faucet strikes