When does borrowing more make sense?

[Basher]

After the two years, i could have found a new deal but i would not have been able to pay maybe 4x-5x at a fixed rate. Where could the money be working better, by saving over 30k interest over that period ? If i had shares, etc due to the current climate they would be bottomed out.

For me this made sense. I want to be mortgage free the time i am 35.

Presumably the 30k saving is over the course of the mortgage term though, right? So for a comparable you'd have to look at how much you'd get in S&S over the same term. My feeling would be that with interest rates so low, the return from stock could well be higher but everyones circumstances are different.

For me, I looked at overpaying by a set amount, and it worked out that I would be mortgage free in 12 years by overpaying and 10 years by putting it into S&S.

 

[Buffman]

After the two years, i could have found a new deal but i would not have been able to pay maybe 4x-5x at a fixed rate.

What interest rate are you on? You can fee free overpay on a lot of trackers.

 

[kai]

What interest rate are you on? You can fee free overpay on a lot of trackers.

3.59% (terrible rate) i know - Halifax. But my minimum monthly payment is like £306.00 a month. I am paying about 5x that right now. My aim is just to clear the mortgage as quickly as possible.

Goal: 2022 - Mortgage free.
200K (current house value) + savings

400-500K house. This buys you a LOT of house in this part of Wales . It will either be us building from scratch on land or buying something that catches our eye.

200/250K mortgage - feels like starting again

 

[fobose]

200/250K mortgage - feels like starting again

Sounds like a good plan! It might feel like starting again but if your in your early 30's (from what you've said) then you will have plenty of time to pay it back, and you will get a much better rate (unless interest prices go up).

 

[Jez]

3.59% (terrible rate) i know - Halifax. But my minimum monthly payment is like £306.00 a month. I am paying about 5x that right now. My aim is just to clear the mortgage as quickly as possible.

Goal: 2022 - Mortgage free.
200K (current house value) + savings

400-500K house. This buys you a LOT of house in this part of Wales . It will either be us building from scratch on land or buying something that catches our eye.

200/250K mortgage - feels like starting again

Just buy the land. We nearly bought another house last year before i just thought no. Now buying an unconverted barn. It is literally about twice as large as i could ever hope to afford when it comes to an existing house. The work...once you own the land/place, just get the plot/place locked in and you'll get there eventually. Thats my ethos anyway.

 

[Harnser]

So for a comparable you'd have to look at how much you'd get in S&S over the same term. My feeling would be that with interest rates so low, the return from stock could well be higher but everyones circumstances are different.

Circumstances are different, and so is people's tolerance for risk. The stock market is awesome - most of the time. When its performance doesn't fit your timing - it sucks.

Me? I sleep better at night knowing that I'm secure, paying down my mortgage fast and unlikely to lose my home even if the current crisis continues to bring zero work. Sure, I'm not getting the returns I could by putting the money in the stock market but I value peace of mind over extra disposable income.

 

[Buffman]

3.59% (terrible rate) i know - Halifax. But my minimum monthly payment is like £306.00 a month. I am paying about 5x that right now. My aim is just to clear the mortgage as quickly as possible.

Goal: 2022 - Mortgage free.
200K (current house value) + savings

400-500K house. This buys you a LOT of house in this part of Wales . It will either be us building from scratch on land or buying something that catches our eye.

200/250K mortgage - feels like starting again

Sounds good! Is there a reason you havent gone for a cheaper rate? Hope you havent been paying that for long. Remember you can always get out of it once youre out the fixed term.

For instance i just got ~1.6% on a 60%LTV from nationwide (only about £50 fees). It is fee free, base rate tracker unlimited overpayments and no end early fees. For me i swapped as i may move house next year. For you itd still be worth moving (if you can) as 3.6% is pretty terrible.

Im also considering up to 500k Houses but that doesnt buy you much in nicer areas round my area

 

[HangTime]

Banks aren't letting people buy homes with low ltv any more.

Why not?

 

[Golf1.6]

Circumstances are different, and so is people's tolerance for risk. The stock market is awesome - most of the time. When its performance doesn't fit your timing - it sucks.

Me? I sleep better at night knowing that I'm secure, paying down my mortgage fast and unlikely to lose my home even if the current crisis continues to bring zero work. Sure, I'm not getting the returns I could by putting the money in the stock market but I value peace of mind over extra disposable income.

haha yes, I watched a yt video [which makes an an expert on the subject] about the scam of hedge funds. Most don't even beat the ftse100 index, which makes you wonder what do they spend all their day doing? Stockmarket is basically when the economy is booming, and idiot can make money from it, when the stockmarkets are shattering down not even market leaders make money - they have enough cash and knowledge to buy when share prices bottom out.

You're in an enviable situtation. I'm self emplyed and have to get £60K depo together to even consider buying a house. In the mean time I'm paying £1200 rent to a landlord who in my estimation is probably paying £650-£700 pcm mortgage for the property.

I don't understand why banks are so tight, it's pretty much a risk free investment. If I won't or can't afford to pay my mortgage - they can take they house. it has a virtually risk free collatoral tied into it. Why be so stingy. I think they lend 4x or 5x annual income right now IIRC

 

[Fusion]

I don't understand why banks are so tight, it's pretty much a risk free investment. If I won't or can't afford to pay my mortgage - they can take they house. it has a virtually risk free collatoral tied into it. Why be so stingy. I think they lend 4x or 5x annual income right now IIRC

Its not a risk free investment when there’s a chance the property could lose 20% of its value. It’s a fallacy to think that house prices are guaranteed to rise indefinitely. As many a financial institution has advised, past performance is not indicative of future returns

 

[Harnser]

You're in an enviable situtation. I'm self emplyed and have to get £60K depo together to even consider buying a house. In the mean time I'm paying £1200 rent to a landlord who in my estimation is probably paying £650-£700 pcm mortgage for the property.

I don't know how old you are but it took me until I was in my 30s to save enough. I:

• Didn't go on holiday in many of the years (and when I did they were cheap)
  
• Ate out once a month max
• Gave up drinking
  
• Bought tech when I needed it not when I wanted it
• Ran a car until it failed at 18 years old
  
• And still enjoyed living

Yeah it was hard, but it's amazing what you can save if you cut down to essentials. I kept 2 luxuries because otherwise all fun would go.

 

[fobose]

It took me 9 years to save my deposit that I put on my first house when I was 25. I lived at home and paid £210 month rent to my parents which was a 1/4 of my income when I first started work at 16. I got in to quite a regimented routine early on and did not spend crazy amounts on money on things when I could have. Also, the 5-6% interest at the time helped greatly. I was also fortunate enough to put my savings in to nationwide 3 year ebond just before the last recession so my interest stayed good until a few months of buying my house!

None of it was easy though, it took a lot of dedicated and sacrifice.

 

[Golf1.6]

Its not a risk free investment when there’s a chance the property could lose 20% of its value. It’s a fallacy to think that house prices are guaranteed to rise indefinitely. As many a financial institution has advised, past performance is not indicative of future returns

Sure if you're buying a house as an investment, not the case if you're buying it to live in. because I'm paying £14,400 to my landlord to pay his mortgage. property values will go up and down. But you'll have to be quite unlucky to buy at the high and then have the value fall by 20% after purchase. I know someone who bought their house in 2008 so I know it's entirely possible.

The 20% fall is quite rare though. Anything in London (where I live) is unlikely to fal by that. Brexit barely moved the needle here in London

 

[Fusion]

Sure if you're buying a house as an investment, not the case if you're buying it to live in. because I'm paying £14,400 to my landlord to pay his mortgage. property values will go up and down. But you'll have to be quite unlucky to buy at the high and then have the value fall by 20% after purchase. I know someone who bought their house in 2008 so I know it's entirely possible.

The 20% fall is quite rare though. Anything in London (where I live) is unlikely to fal by that. Brexit barely moved the needle here in London

I mean, it’s not risk free for the bank. Imagine someone buys, then loses their job a few years down the line and the house ends up repossessed. The bank try to sell the house, but it’s worth less now because we could be in the middle of a slump.

 

[Jez]

Sure if you're buying a house as an investment, not the case if you're buying it to live in. because I'm paying £14,400 to my landlord to pay his mortgage. property values will go up and down

Every house is an investment for the bank, though. They need to be prepared that they will need to offload it and recover the investment at any time and at a very realistic auction type price.

The banks actually did used to be very free flowing, when I bought my first house it was very common to “self certify” your income, a process where you merely declared your income to them but didn’t need to provide any proof and just signed to say that you accept that they may repossess. You could borrow as much as you were comfortable with in theory. Products at over 100% LTV (as in zero deposit and cash back to you on top of the house!) were also around.

Then 2008 happened

 

[Golf1.6]

Every house is an investment for the bank, though. They need to be prepared that they will need to offload it and recover the investment at any time and at a very realistic auction type price.

The banks actually did used to be very free flowing, when I bought my first house it was very common to “self certify” your income, a process where you merely declared your income to them but didn’t need to provide any proof and just signed to say that you accept that they may repossess. You could borrow as much as you were comfortable with in theory. Products at over 100% LTV (as in zero deposit and cash back to you on top of the house!) were also around.

Then 2008 happened

Those were the good days, it's a shame I was too young back then.

I mean, it’s not risk free for the bank. Imagine someone buys, then loses their job a few years down the line and the house ends up repossessed. The bank try to sell the house, but it’s worth less now because we could be in the middle of a slump.

I suppose it's not entirely risk free. But their risk/reward needs to be balanced. They're charging tiny amounts of interest and for that they need to make it a 100% guarantee.

Shame they don't look at your rental payments as a factor. Someone's paid rent for 5+ years - but that counts for nought. That should translate to a good record of handling large monthly payments.

 

[moon man]

makes me realise how cushy things were when i joined these forums ,5 percent deposit modern 3 bed for 3 times earnings back in west yorkshire ,took me 9 years to be mortgage free with mostly crappy jobs ,then the freedom to move somewhere to live rather than just exist

 

[MikeTheNative]

Sure if you're buying a house as an investment, not the case if you're buying it to live in. because I'm paying £14,400 to my landlord to pay his mortgage. property values will go up and down. But you'll have to be quite unlucky to buy at the high and then have the value fall by 20% after purchase. I know someone who bought their house in 2008 so I know it's entirely possible.

The 20% fall is quite rare though. Anything in London (where I live) is unlikely to fal by that. Brexit barely moved the needle here in London

I suppose negative equity is manageable until you have a change of circumstances (lost job/need to move etc.) then your in the crap.

 

[Martynt74]

makes me realise how cushy things were when i joined these forums ,5 percent deposit modern 3 bed for 3 times earnings back in west yorkshire ,took me 9 years to be mortgage free with mostly crappy jobs ,then the freedom to move somewhere to live rather than just exist

Really off topic here. But this is the first post of yours i've seen since i thought of asking.

Did you ever make a post about your experience doing the El Camino? I'm reading a book about the PCT and been interested in doing something more accessible.

 

[HungryHippos]

I suppose negative equity is manageable until you have a change of circumstances (lost job/need to move etc.) then your in the crap.

No it's worse than that, in negative equity you can't switch to a new deal on favourable times, because you owe more on the mortgage than the house is worth.

So if it's really bad, people can be stuck on the SVR rates, which are fairly punishing.

It's not just a case of waiting for the price to recover before you sell it, you will pay much higher interest rates in the meantime, if you can even afford those (some people probably can't).