At 45 should I be a MFW?

setmefree2

I have another thread running on here - my MFI5 journey but following a posting by "Ger Things Done" it has made me think. Do you think 45 is too old to be considering taking on a new mortgage? Do you think we should be mortgage free by 50 and then saving in our 50's for our retirement? or do you think that at 45 you have one more mortgage in you? Which do you think is the best path financially? All views welcome.:D

angelavdavis

Surely it depends on the term of the mortgage?

If you think you will continue working until you are 65, then perhaps a 20 year mortgage is an option for you.

tanith

We took out a new mortgage when we were around 48yrs, not ideal but we reduced the term to coincide with OH retirement age at 65 . Its worked out fine and we have managed the repayments and saved as well even though I had to retire early due to ill-health.. that is one thing to consider actually wether you would manage the repayments if you were to have to retire early...

So in an ideal world yes its best to be mortgage free at 50 IMO but with divorce and having children later in life its going to become harder to do for most people...

Karmacat

smf, there *can't* be one answer to this, there just can't, with all the financial and emotional variables involved. Given the wonders of compound interest, which take place more strongly the longer you let it run, you *don't* start saving for your retirement in your 50s, however. As I was coming up to my 50th, I realised this more and more strongly. Thats the only general point I think is valid whatever the circumstances.

Otherwise, its *your* answers to these sorts of questions:
a. insurance
b. how long you'd like to work
c. how long you're likely to be *able* to work
d. income multiples
e. available property
f. resolution with your neighbour
g. about a million other things!

loveandlight

It really depends on your outlook on life, how old or young you feel, your lifestyle in general and your financial capabilities to earn/repay.

I know people who are 50 and already act like they have one foot in the grave and talk as if their lives have already come to an end and are waiting to die.

I also know others who are this age and have more active lifestyles than teenagers and have the same outlook on life as when they were in their 20's and they are taking on new mortgages at 50 because they have bought a business, started a new business, emigrated, changed careers, found love etc etc.

esthomizzy

I'd say it all depends on how happy you are in your job. If you were thinking of paying off your mortgage so you can downsize or take time out to do something you enjoy then maybe not but if you live to work and have no intention of thinking of retiring early then you can probably take on another large mortgage.

No choice is the wrong choice

setmefree2

Hi,

Can someone shoot me down if the following is wrong:rotfl::-


Situation if we don't move:-

Property 650k
Mortgage 130 assume int rate 6.24%
Net Worth 520 NOW

5 years time
Property 1047 Assume house price inflation of 10%
Mortgage 30 Assume overpayments of £1k (p mth £2.5k) int rate 6.24%
Net worth in 5 1017K

Situation if we Move

Property 850k
Mortgage 380 Assume £50k costs - stamp duty at 4% int rate 6.24%
Net worth 470

5 years time
Property 1369 Assume house price inflation of 10%
Mortgage 332 Assume monthly repayment (£2.5k) int rate 6.24%
Net worth in 5 1037

Have I missed anything? All views welcome:D

Which situation would you prefer to be in AT 50 and Why? Thx

InMyDreams

Initial thoughts as I’m rushing out…

How confident are you that house prices will rise 10% per year? Redo your calculations with a drop of 10%, or even 5% per year and see what that looks like.

What about calculating various ‘5 years time’ situations for not moving and speculating the £1k overpayment in funds rather than in a new home?

You have left yourself no margin of overpayment if you move. What happens if house prices plummet and interest rates soar, if not now then in 5, 10, 15 years time?

What are the chances of you having to move again in the future?

Having said all that, if that 850k home will make you and your family happier, then surely that happiness is worth a *drop* in net worth assuming you are very confident you could continue to service the mortgage, even if interest rates surged. If you can keep up the mortgage, then does it matter what the value of the house is if your family is content and doesn’t have to move again? This is why thinking about your home as an investment is a bit different to other investments, IMHO.

Karmacat

Well said, inmydreams - you've only got one set of assumptions there, setmefree, you probably need to look at the two scenarios in different situations - price crash, economic downturn, technology makes a difference to your work availability, etc etc....... there are all sorts of reasons things might go differently.

Dithering_Dad

Hi smf2,

The difference between the monthly mortgage (Interest Only) repayments is more than 1k per month (which you have put as the overpayment for mortgage 1). If you want an accurate comparison, you have to put equal amounts onto the two mortgage per month.

If we just do a rough calculation for year one's mortgage interest only:

Prop1: £130k x 6.24% = £8112 annual interest payments.
Prop2: £380k x 6.24% = £23,712 annual interest payments.

The difference is £15,600 in the first year of having these properties or £1300 per month. If you had made an overpayment of £15,600 onto property one over the first year, your mortgage will then be £114,400 at the end of Yr1.

If we just do a rough calculation for year two's mortgage interest only:

Prop1: £114,400 x 6.24% = £7139 annual interest payments.
Prop2: £380,000 x 6.24% = £23,712 annual interest payments.

The difference in interest payments is now £16,573 or £1381 per month. So by the end of this year, you will have reduced your mortgage to £97,827 at the end of Yr2.

If we just do a rough calculation for year three's mortgage interest only:

Prop1: £97,827 x 6.24% = £6104 annual interest payments.
Prop2: £380,000 x 6.24% = £23,712 annual interest payments.

The difference in interest payments is now £17,608 or £1467 per month. So you will have reduced your mortgage to £80,219 at the end of Yr3.

etc, etc. Actually as you will be making monthly overpayments, not annual ones as I have roughly calculated here, you will actually be paying more off due to compounding. Also, you will be paying normal capital repayments onto both mortgages, so they will both decrease over the 5 years, but the majority of the monthly payments will consist of interest payments. I suggest you put the figures through a mortgage calculator to get more accurate figures.

You should also try your figures with a HPI of -5% over the 5 years as there is a possibility there will be a downward adjustment in house prices during this period.

As an even better comparison of net wealth, do your calculations with just the 1k per month overpayment and with the additional £300 per month placed into an ISA. Roll up the calculations over the 5 years (again, with just a £1k per month overpayment) and you will find that as mortgage 1 decreases, you can invest more into the ISA.

After 5 years, not only will you have reduced your mortgage by 12k x 5 but you will have a sizeable amount in your ISA pot. A far better way of increasing wealth than paying approx £60k in interest payments to the bank over the same period.

Other factors may impact you over 5 years and need to be mentioned... If you or your OH lost your jobs and either had a period of unemployment or had to accept lower paid work or if one of you became seriously ill and had to stop work or had children or any other of the many ways we have our income reduced, you will be in a much better position to weather the storm with mortgage A than mortgage B. You can always stop the 1k overpayments without penalty and usually can take payment holidays to the value of your overpayments - with the larger mortgage you HAVE to keep paying the monthly payments. If you default for long enough the house will be reposessed and sold at auction for a fraction of its true price. The bank will take its monery and give you whatever is left.

and lets not even mention fluctuations in the interest rate!

Jonbvn

Based on your post, your criteria for success seems to be increasing your net worth. Of course, you must also consider the subjective things, like living in a bigger house and/or better area, which are difficult to put a monetary value on.

Considering your net worth only, with your plan you are putting all your eggs in one (property) basket only. This is considered a very high risk to approach investing. With house prices more likely to fall, rather than your overly optimistic assumed rise of 10%, some diversification into other assets would seem wise.