Should you get a mortgage or pay cash for your home?

Mickey666

AdrianC said:

You're one year into your degrees - and you have your entire life planned out?

I suspect this thread is something of a wind up, but even so I wouldn't be too harsh on a 19 year who has their life planned out compared with so many people who don't seem to think beyond the next weekend.  There are countless threads on here from people in their 40s still thinking about buying their first home or people in their 50s starting to worry about their pension provision.  Thinking about those things in your teens, when you have time on your side, seems eminently sensible to me.  

Also, don't confuse ambition with having a solid plan because without ambition it's difficult to plan in the first place.  Besides, plans can (and should) change according to prevailing circumstances but that doesn't mean ambitions have to change.  There are many routes to the same destination

FrugalCat

OP, 
Kudos for the attempt, but you're in the wrong echo chamber here.
Seach for "reddit FIRE" and "reddit FIRE UK" where you will find like-minded people who understand the concept and will advise accordingly.

If you ask your question there, the likely response will be along the lines of: Invest as much cash as you need to secure a lower interest mortgage (you'll need 25%+ deposit), then keep the rest of your capital in faster returning investments.
As long as your mortgage interest is lower than the return on other investments, you're better off not paying it down.
I'd stipulate you should look into renting as part of your calculation - and also owning/subletting.

Personal advice: Don't forget to live your life while you're FIREing - particularly while you're young and on low income. 

AdrianC

Mickey666 said:
Also, don't confuse ambition with having a solid plan because without ambition it's difficult to plan in the first place.  

"I want to go school->uni->school and stay there until I retire" is not very ambitious. Especially if, as seems certain, "school/uni/school" are all in the same town or city.

OP - have you ever read a novel called "Stoner", by John Williams?

YoungFIREman

Like I said, I know it seems crazy but I didn’t ask for a lecture about how to live life, I just wanted to give context to see if paying cash for a home is smart. But thanks for all of your help everyone! 😁

YoungFIREman

FrugalCat said:

OP, 
Kudos for the attempt, but you're in the wrong echo chamber here.
Seach for "reddit FIRE" and "reddit FIRE UK" where you will find like-minded people who understand the concept and will advise accordingly.

Yeah I found that out very quickly didn’t I? Haha thanks very much for your kind words 👍

AdrianC

YoungFIREman said:

I just wanted to give context to see if paying cash for a home is smart

There is simply no difference - except you don't pay interest on the borrowed money.

Grumpy_chap

YoungFIREman said:

Hello everyone!

Context: My girlfriend and I are 19 years old and are currently university students saving at least 75% of our income each month which means we will finish our 4 years at university with over £100,000 saved and invested (in stocks and shares ISAs). We will then be able to save to pay cash for a home (£200,000) in 2 years after graduating - of course depending on how quickly we manage to get a job (both of us want to become teachers). 

We have an emergency fund already saved and we have never been in debt and don’t want to get into debt because we would prefer the freedom of a paid-for home. It is crazy that we are likely to have the money saved for a home by our 25th birthdays but we’ve started very young and it is more than possible for us. 

Once our home is paid for, we will then be looking at weddings/marriage and any home renovations that may need doing before having children in our late 20s. 

And then we will continue saving for retirement which we aim to have the option to do by the age of 40. 

I understand our financial situation is extreme but we have been together nearly 3 years and we are still 19 years old and so we are starting very young. 

Question: are there any obvious downsides to this plan that you can see regarding the financial aspects and is paying cash for a home a smart thing to do or is it more risky than it appears? 

Thank you for your help and I hope you have a lovely day! 

I applaud the OP and GF on their thrift and their aspirations.

I am not sure that I understand the figures.  At the end of 4-years Uni, they aim to save £100k, so £50k each.  That means saving £12.5k each per year, which is 75% of income.  So that makes total income each £16.5k per year and total cost of all living £4k / year each, which is possible to do at Uni life, maybe not so achievable after Uni.  This would require the couple to be living rent free (parents) through Uni.

Do many students have an income at £16.5k / year?

Has the OP taken into account that living expenses once in own home will be must higher than £4k / year?

FIRE is a valid lifestyle choice.  I have seen the extreme behavours that some FIRE-devotees take and wonder whether it is really worth all that - life is for living not just growing old and moving onto whatever comes next.

YoungFIREman

AdrianC said:

There is simply no difference - except you don't pay interest on the borrowed money.

Thanks a lot 👍

YoungFIREman

woodsford said:

Haha this thread made me chuckle.

Can you explain why please?

MaryNB

The only thing I would be concerned about is unintentionally buying a property that is unmortgagable. For example you buy a flat with cash that has a doubling ground rent clause that you consider acceptable but lenders don't, or a house that is of non standard construction which causes issues with future a buyer's lender (I've seen posters here have problems with lenders object to single skinned walls). You could end up with problems selling later on.  You'd just have to be aware that while you don't need a mortgage, future buyer's probably will and make sure there isn't anything about the property that lenders won't like.