Mortgage vs savings...+ exchange rate

[RizzoTheRat]

Looking at buying a house in the Netherlands, and currently have savings in both £ and €. Slim possibility of moving back to the UK in 3 years, more likely to be 6 years, possibly longer.

Given that I can get a 10 year fixed mortgage at 1.28%, am I right in thinking I'd be better off taking a bigger mortgage rather than using my £ savings to bring the mortgage down (assuming I don't cross an interest rate threshold), and investing the £ rather than taking the risk that in a few years the pound has got a lot stronger and I've lost a load on the exchange rates?

I'm normally agasint borrowing money if I don't need to but a combination of low interest rates and the currently really low pound complicate things.

[gangzoom]

RizzoTheRat said:

Given that I can get a 10 year fixed mortgage at 1.28%, am I right in thinking I'd be better off taking a bigger mortgage rather than using my £ savings to bring the mortgage down

I have zero idea about 'investments' literally none, but current mortgage borrowing is the cheapest in living memory and providing you have job security its pretty much 'free' money providing you plan a repayments to pay off most of the additional borrowed at the end of the fixed period.

If you can guarantee repayment of the capital back by the end of the fixed term it than really is a magic money tree, allowing you to move fowards planned spending by 5-10 years, and time is something that is so valuable.

Its anyone's guess how long rates will stay this low for but not taking up additional borrowing now to spend on something like property is essential like looking at a gift horse in the mouth.

Just get is done!! We are just about increase our LTV figure by about 30% to take advantage of the cheap money on offer through additional mortgage borrowing.

Like you I normally hate addtional debt especially mortgage borrowing as its usually the most expensive way debt by far, but its a strange world we live in right now!!

Edited by gangzoom on Wednesday 31st March 06:02

[mikey_b]

gangzoom said:

Like you I normally hate addtional debt especially mortgage borrowing as its usually the most expensive way debt by far, but its a strange world we live in right now!!

Edited by gangzoom on Wednesday 31st March 06:02

Surely mortgages are generally a cheaper form of debt than pretty much any other. Certainly compared to bank loans, let alone credit cards.

[Mattt]

mikey_b said:

Surely mortgages are generally a cheaper form of debt than pretty much any other. Certainly compared to bank loans, let alone credit cards.

The rate is lower, but the time taken to pay off is longer therefore can cost more in the end.

[Deesee]

Since the euro has been in existence, its been worth anything from 60p to 100p.

If you're buying/borrowing in euros and at some point selling in euros, carry as much of the purchase as you can afford in euros.

Your 1.2% interest euro mortgage is effectively a hedge for you as well as a home loan.

Negative equity and a negative exchange rate, could prove a costly purchase.

Also are you currently paid in euros?

[gangzoom]

mikey_b said:

Surely mortgages are generally a cheaper form of debt than pretty much any other. Certainly compared to bank loans, let alone credit cards.

It's expensive purely because of the length and the way the interest is calculated across the whole 25 year term and front loaded so you are paying interest charges for the next 25 years right from the start. It's like compound interest for saving but backwards.

Take a look at your last annual mortgage statement, even with 'only' an APR of 2.2% on our current mortgage 30% of the monthly payment roughly is interest. So if you actually cacluated our cost of borrowing just for the last 12 months for the mortgage the true rate is well over 30%, and no where near the headline figure.

It is 'cheap' if you can pay back the capital quickly - over 5 years or so with a plan to fully repay the capital than the cost of borrowing is OK, especially if its efficilty buying you time allowing you to do things years earlier than planned, but leave it to run the course of a 25 year term and you will pay a substantial amount of interest.

Edited by gangzoom on Thursday 1st April 12:04

[RizzoTheRat]

Yeah forgot to say I'm paid in euros too. Rate drops at 85% mortgage and I'll need to transfer a a small amount from pounds to hit that, but don't think it's worthwhile transferring more to bring the mortgage down.