Better to be mortgage-free or have "good" debt when young?

marathonic

bigfreddiel wrote: »

I bought my first tiny house in the 70's two up one down terrace, for £7,000.. I was only paid £50/week as a graduate engineer.

The mortgage took most of my salary, along with council tax, car tax, car loan etc. Result no money left at the end of each month.

It was harder then than now. fj

bigfreddiel wrote: »

It want a high salary, in 1977 I moved from aero engineering to teaching and doubled my salary!

Cheers fj

So within a few years of buying a 3-bed terrace, your house was worth 1.35 times your annual salary and you are arguing that it was hard then and the youth of today has it easy?

Do you really believe this or are you just trying to be provocative?

bigadaj

marathonic wrote: »

So within a few years of buying a 3-bed terrace, your house was worth 1.35 times your annual salary and you are arguing that it was hard then and the youth of today has it easy?

Do you really believe this or are you just trying to be provocative?

Would have thought you'd be familiar with Freddie's posting style by now.

Not so much blue sky thinking as fresh air between the ears.

Ray_Singh-Blue

I take a "balanced" approach apportioning wealth between house equity, pension, and other financial assets.

Every financial decision is a bet, in some way. If you use all your cash to pay off the mortgage, then that's a kind of bet - that the cash won't do better elsewhere.

Thrugelmir

Ray_Singh-Blue wrote: »

Every financial decision is a bet, in some way. If you use all your cash to pay off the mortgage, then that's a kind of bet - that the cash won't do better elsewhere.

Having peace of mind with no worries is worth every penny. How secure is your job? That's something I'd never bet on.

Ray_Singh-Blue

Thrugelmir wrote: »

Having peace of mind with no worries is worth every penny.

I fully agree and find that having a number of different assets brings that peace of mind.

A pension will provide income when older.
A house will provide shelter.
Financial assets can cover a bad patch, say a job loss or health problem.

My point was more that, at the point someone chooses whether to overpay the mortgage or save and invest, their net wealth is the same. What happens from there is out of their hands- it depends on market returns and interest rates. If they concentrate their wealth in one asset class, in this example property equity, I'd argue they are taking more risk than if they diversify. This doesn't mean that they will fare worse; just that they might.

atush

AnotherJoe wrote: »

Another vote fur not putting everything into mortgage but pension.
Every £1,000 you pay off your mortage saves you perhaps £3 a year, the same in a pension gains you £50* plus probably 50% more growth than the £3 saved on the mortage. Or if you are higher rate tax payers it will get back far more.

* you'll get £250 but then most likely later pay back £200 when you withdraw.

this is not most likely if you retire before SPA, and have your income paying outside assets in S&S isas.

But I do agree that paying off a mtg (or not having one at all) in these days of low interest rates isnt the best financial play.

So, for the OP you can take out a new mtg or not (say to fill 2x S&S isas plus an emergency cash fund if you dont have one).

If you dont, save up 6 months expenses in cash, fund 2x pensions- one for each (company pensions are best if your employer pays in) and 2x S&S isas.

If you are SE consider becoming an LLC if you can save on tax (both income and pension).

jamesd

It's not guaranteed but I'd be looking to make around £15k a year via P2P and VCT with the £150,000 you could pay off the mortgage.

You aren't going to be able to get a mortgage when in financial need but that £150k can keep you going for quite a while, even indefinitely, if you lose jobs.

Primrose

Having twice experienced totally unexpected redundancy I cannot put too high a value on knowing that your mortgage has been paid off early and no bank or building society can ever come along and repossess it.

The trouble with debt, even "good debt" is that it is still money owed to somebody which can unnecessarily complicate your affairs. Fine when all is going well but an unwanted problem when something unfortunate u expectedly happens to complicate your life in some way.

darkidoe

Primrose wrote: »

Having twice experienced totally unexpected redundancy I cannot put too high a value on knowing that your mortgage has been paid off early and no bank or building society can ever come along and repossess it.

The trouble with debt, even "good debt" is that it is still money owed to somebody which can unnecessarily complicate your affairs. Fine when all is going well but an unwanted problem when something unfortunate u expectedly happens to complicate your life in some way.

True that. Hence I would try my utmost best to avoid debt all together.

But it would be extremely difficult for someone with the average wage to get on the housing ladder without a mortgage. Some times we just have to take the risk and take all the steps to minimise the risk as much as possible.

Primrose

darkidoe wrote: »

True that. Hence I would try my utmost best to avoid debt all together.

But it would be extremely difficult for someone with the average wage to get on the housing ladder without a mortgage. Some times we just have to take the risk and take all the steps to minimise the risk as much as possible.

Agree. Much of this is about understanding your personality, attitude to stress and debt and trying to plan and organise your life to best accommodate that profile. A mortgage is unfortunately essential for most of us in the earlier stages of our our life if we want to get onto the housing ladder. Once that is achieved, how soon it gets paid off can often depend on how essential you regard eating out regularly, expensive holidays , acquisition of modern techie gadgets etc.