To mortgage or not to mortgage?
Discussion
Hypothetical....
If I were to have say £500,000 in the bank and was looking to buy a £450,000 house, would I be wiser to pay for the house outright and not bother with a mortgage?
Or is there any merit/value/safety in opting to take out say a £100,000 mortgage which would mean spending £350,000 on the house and retaining £100,000 as "accessible cash" in the bank?
(Meaning overall that there would be £150,000 as savings in the bank - spread across two accounts in order to get the FSCS protection of amounts up to £85k course).
If I were to have say £500,000 in the bank and was looking to buy a £450,000 house, would I be wiser to pay for the house outright and not bother with a mortgage?
Or is there any merit/value/safety in opting to take out say a £100,000 mortgage which would mean spending £350,000 on the house and retaining £100,000 as "accessible cash" in the bank?
(Meaning overall that there would be £150,000 as savings in the bank - spread across two accounts in order to get the FSCS protection of amounts up to £85k course).
Some Gump said:
Why not get an offset mortgage, then put equal amount in offset = access to liquidity, but 0 interest?
I don't know.... generally speaking if a person has the funds to buy the house outright, is there any merit/value/benefit of taking out a mortgage of any kind?I'm guessing a lot of it is to do with personal situation and if there is a reason to require access to funds the bank?
There is potentially mileage in taking a mortgage and investing the £500k or part thereof with a view to achieving a greater return than the mortgage interest rate.
Leaving it "in the bank" will just result it the value eroding due to inflation.
It really hinges on whether there is likely to be any other requirement to use the money and if circumstances now might make it more favourable to obtain a mortgage now rather than further down the line.
Leaving it "in the bank" will just result it the value eroding due to inflation.
It really hinges on whether there is likely to be any other requirement to use the money and if circumstances now might make it more favourable to obtain a mortgage now rather than further down the line.
GreatGranny said:
Why have a mortgage when you don't need one?
If you can buy with cash and still have £50k left then do this.
How many of us need to get hold of more than £50k in a hurry for something?
You can always re-mortgage in the future if you need £100k in cash.
Well, just thinking about it in my situation and assuming a lump sum of £100k....If you can buy with cash and still have £50k left then do this.
How many of us need to get hold of more than £50k in a hurry for something?
You can always re-mortgage in the future if you need £100k in cash.
I currently salary sacrifice about £15-£20k a year into my pension. If I upped my contributions to max out at £40k I would effectively be getting an extra £8k a year free from the government.
The increase in pension contributions would mean I’d lose about £1300 a month from my take-home which I could replace by drawing down from that lump sum we’re talking about.
So that £100k would allow six years of increased pension contributions gaining me an extra £48k in my pension pot. If I’d used it to chip off £100k from my mortgage it would’ve saved me about £1500 of interest per year - so about £9k.
And in some cases salary sacrificing £40k a year might drop you back into the range where you can claim child benefit, so netting you £1500 a year or so! Even just that would cover the interest in the mortgage.
RichardAP said:
Borrowing £450k will depend on affordability, which will be assessed on income not on savings, so potentially would make the decision for you.
If you can afford the mortgage i would invest it, although I would probably buy a more expensive house...lol
Haha, exactly this!If you can afford the mortgage i would invest it, although I would probably buy a more expensive house...lol
RichardAP said:
....
I would probably buy a more expensive house...lol
^This. If it’s your primary home, it’s free of Capital Gains Tax so one of the more tax efficient investments you can make. With interest rates also low and house prices firm, I’d buy a bigger house. Oh, and unlike most investments, you get to live in and enjoy it too. I would probably buy a more expensive house...lol
RichardAP said:
Borrowing £450k will depend on affordability, which will be assessed on income not on savings, so potentially would make the decision for you.
If you can afford the mortgage i would invest it, although I would probably buy a more expensive house...lol
Why would there be a need to borrow anything? That is the root of the question.If you can afford the mortgage i would invest it, although I would probably buy a more expensive house...lol
GroundZero said:
RichardAP said:
Borrowing £450k will depend on affordability, which will be assessed on income not on savings, so potentially would make the decision for you.
If you can afford the mortgage i would invest it, although I would probably buy a more expensive house...lol
Why would there be a need to borrow anything? That is the root of the question.If you can afford the mortgage i would invest it, although I would probably buy a more expensive house...lol
Depending on how you came by the money a small easily affordible mortgage could be worth while. If you came into it from inherience and were a first time buyer a small mortgage would be useful for credit profiles.
I would however look at buying for £400k with the view to having enough leftover to make any changes I would want.
I would however look at buying for £400k with the view to having enough leftover to make any changes I would want.
I sort of thought there were numerous mindsets on how people approach a mortgage if the funds were readily available for a property purchase outright.
Replies so far have contained a range between, no need for mortgage to get a mortgage for credit score reasons, or get a mortgage in order to keep some in the bank for the unknown.
I was wondering from the outset if there was a "no brainer" default option, but I think it depends on if the person wishes to
(1) be in debt to a bank and pay back more than they borrowed or,
(2) want access to cash in the bank for the unknown possible future or,
(3) need access to cash in the bank for existing or future planed expenditures or,
(4) have a concern over their credit score for the reason of needing to borrow money in the future.
So may be there isn't a default "no brainer" option, but initially I thought why would anyone wish to borrow from a bank and then have to pay back a substantial amount more, labouring themselves with monthly repayments for a decade or so, if they had the funds in the bank to purchase the house and have say £50,000 left over?
Replies so far have contained a range between, no need for mortgage to get a mortgage for credit score reasons, or get a mortgage in order to keep some in the bank for the unknown.
I was wondering from the outset if there was a "no brainer" default option, but I think it depends on if the person wishes to
(1) be in debt to a bank and pay back more than they borrowed or,
(2) want access to cash in the bank for the unknown possible future or,
(3) need access to cash in the bank for existing or future planed expenditures or,
(4) have a concern over their credit score for the reason of needing to borrow money in the future.
So may be there isn't a default "no brainer" option, but initially I thought why would anyone wish to borrow from a bank and then have to pay back a substantial amount more, labouring themselves with monthly repayments for a decade or so, if they had the funds in the bank to purchase the house and have say £50,000 left over?
It completely depends what your goals are, what your overall financial picture is, and your appetite for risk.
If you're comfortable, want a risk and hassle free life then go mortgage free and enjoy the security that brings.
Personally, I'd get a mortgage because lending is so cheap at the moment and I'd have the funds working for me in investments.
One thing is for certain though, I wouldn't have £150k sitting in cash savings.
If you're comfortable, want a risk and hassle free life then go mortgage free and enjoy the security that brings.
Personally, I'd get a mortgage because lending is so cheap at the moment and I'd have the funds working for me in investments.
One thing is for certain though, I wouldn't have £150k sitting in cash savings.
My viewpoint with money largely includes cash is better in my bank than someone else's. So, yes, mortgaging and keeping £450k in your bank provides you with day to day security. If you can make the money work for you, you might be able to cover the annual mortgage cost, (roughly £1800/month on a 25 year mortgage) or more if the investment increases.
Not having the mortgage is also attractive, as one would assume even with cash, you would need an income to service a £450k mortgage, so £100k+ and stretching. Which leads me back to not having a mortgage is attractive. With £5-£8k net per month coming in at least (depending on sole or joint) you without a mortgage would be able to live comfortably whilst working and build up savings fairly quickly. *expenditure depending.
Cash is king. Sometimes it isn't.
Not having the mortgage is also attractive, as one would assume even with cash, you would need an income to service a £450k mortgage, so £100k+ and stretching. Which leads me back to not having a mortgage is attractive. With £5-£8k net per month coming in at least (depending on sole or joint) you without a mortgage would be able to live comfortably whilst working and build up savings fairly quickly. *expenditure depending.
Cash is king. Sometimes it isn't.
- edit, you refer to different sums in your first post. The same format above still applies.
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