Good Idea to be mortgage free?

Apologies if this sounds like a stupid question but I just can't get my head around a discussion I had with a friend about being mortgage free...

My view is that I strive to become mortgage free as soon as possible meaning that if I take out a mortgage; I would take out the minimum I can & borrow the least amount I can as I believe the more I borrow the more interests I would pay back in the long run (regardless of how good my mortgage interest rate is) so therefore I feel it is better to be 'debt' free as possible.

However, my friend has a different view & he challenged my views which got me thinking a bit. His opinion were that to borrow the maximum you can borrow & borrow as much as you can afford to borrow. I challenged him back about paying back more interests in long term but he said it doesn't matter as the house price will rise eventually in the next 30 - 40 years (because of inflation etc) and he would earn a huge profit on his property then.

But my view is that is if he's going to sell his property when he reaches end of his mortgage term in next 30 - 40 years which by then he could be in his retirement stages so i doubt he'll want to move again. 

What does other people think? Keen to hear opposing views on this discussion.


  • South_coast
    South_coast Posts: 4,889 Forumite
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    It would be interesting to know what your friend considers to be a huge profit, given that by the time he has paid his mortgage off he will already have paid back far more than his original purchase price. I would be looking at the lifetime cost of the purchase + mortgage, in which case overpaying is definitely the better option - unless your friend is investing that money elsewhere in the meantime and hoping that that money will earn him more than he would save by OP'ing, but I get the impression that's not the case?
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  • edinburgher
    edinburgher Posts: 13,455 Forumite
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    My interpretation of what your friend is suggestion is that house price inflation is likely to be higher than mortgage interest rates over the next 30-40 years. So, regardless of investments or overpayments (which may not even be part of their thinking), they would expect to turn a profit if (for example) HPI is 4% and they can borrow money at 2%
  • pjcox2005
    pjcox2005 Posts: 1,015 Forumite
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    There is no right answer, on a purely maths basis with current mortgage rates, recent house price growth and inflation then he's probably right. Stretch to a bigger house and when it goes up it's likely to have gone up more in value than a smaller house, although it ignores that by buying a smaller house you'd have more disposal income to save so could have made more on shares or crypto if you got lucky. It also could go wrong if you had a house price crash as larger houses are going to drop more in real value for example if house prices drop 10% across the board.

    Likewise contributing to a pension rather than overpaying a mortgage is likely to be better in terms of final wealth.

    However, bring emotion into it and not stretching yourself may save a lot of stress on bill payments and the security of paying off a mortgage is huge for a lot of people.
  • 400ixl
    400ixl Posts: 2,771 Forumite
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    The counter argument is to put that money into a pension scheme where you will get the tax back immediately which could be 40% and then the investment growth. This may well out perform house increases (when you also take into account the interest rate paying out) and also spreads your risk across different investment types.
  • savingholmes
    savingholmes Posts: 27,258 Forumite
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    I think you need to work out what you can comfortably afford. You need to take account of whether you have on wage coming in or two. If it's two and you can manage on one wage comfortably it gives you options and flexibility if times get hard - if it's one then a bigger emergency fund is desirable. Only you know what level of risk you are comfortable with. Only time will tell whether whatever you decide is a good choice or not.

    Depending on how far from retirement you are - it also makes sense to take into account saving into a pension and the benefits that can bring or even investment isas. It sounds like you need to investigate a few different strategies before deciding. 

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  • It depends whether the cheaper property you buy is one you're happy to live in indefinitely. 

    Let's say there's a cheaper property that costs £100k and a more expensive one that costs £200k. If house prices stay the same then financially you're better off buying the cheaper property, pay off the mortgage and then buy the £200k property because you're basically borrowing £100k twice whereas the interest you pay on £200k is more than twice what you pay on £100k.

    The problem is house prices don't stay the same. Using the same example, if property prices doubled by the time you pay off the mortgage on the cheaper property then the cheaper property would be £200k and the more expensive one £400k. Therefore you'd need to borrow £200k to buy the expensive property so you would have been better off buying the more expensive property in the first place.

    I say this as someone who has tried to save as much money on interest as possible. I saved a big deposit and am about to pay my mortgage off after 5.5 years after spending just £10k interest on a £260k property. Sounds great but had I bought 5 years earlier which I could have done I would have paid more interest but properties were around £80k cheaper not to mention the money I spent on rent in those 5 years.
  • badmemory
    badmemory Posts: 7,699 Forumite
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    If your house increases a lot in value how will utilise that increase?  You will still need a roof over your head.  Once you are on the housing ladder house prices are fairly irrelevant as long as you can pay the mortgage.  At the moment no-one seems to have a clue whether house values are going to increase or decrease, but back about 15 years ago there were a lot of people in negative equity.  So I would say buy what you can sensibly afford (don't clean yourself out), then work on getting a reasonable equity in it.  Remembering that the higher the bank rate goes the higher the mortgage rate will, along with rents.  Then when you have a reasonable equity - hit your pension.
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