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Original poster

Mortgage V No Mortgage?

28 replies

firsttimemum77 · 03/07/2010 13:32

Okay - this question seems like a no brainer to me but I could be wrong....

Personally I think that the sooner the mortgage is paid off the better - however my MIL who thinks she is the bees knees because she has 4 properties and 3 she lets out (2 have a mortgage on them) advised my DH that we should rent out our property (which has a small mortgage on it) and buy another with a bigger mortgage and (I don't know how it all works) pay some off the mortgage off the new property with the rent received from let property....

I say - we have a small mortgage and more savings then the amount of mortgage owed, lets pay the mortgage off, be mortgage free at 32! Then if we want to buy another house, we can sell up and move to another paid outright...

DH says MIL advised that its always good to have a mortgage - WHY? and she must be right because she is 'experienced'...

AIBU to think MIL is talking pants!
Prepared to be told I am...

OP posts:
MrsC2010 · 03/07/2010 13:34

Personally I would get rid of it. It can be argued that holding on to some well managed credit is good for your rating but who knows. If you would still have some savings left after then you still have a safety net. For some people their mortgage is crippling so to get rid of it must be a dream. Ours isn't huge so we don't mind it so much. If you want to 'upsize' then you may well have to take another mortgage to top up, but with the equity you have your loan to value would presumeably be great so you shouldn't have an issue.

foreverastudent · 03/07/2010 13:35

It is good to have a mortgage because it imporves your credit rating over owning your home outright.

Also spreading the risk of house price deflation between different properties is quite a good idea in the current climate.

pagwatch · 03/07/2010 13:36

The interest rate is ridiculously low at the moment so, if you can get one, morthahes are cheap and any interest gained on savings is frankly a waste oftime.

So generally you are right, getting mortgage paid and being debt free would be my choice. But at the moment having a mortgage rather than savings- which are earning zilch- makes sense.

IMHO

pagwatch · 03/07/2010 13:37

morthahes are either a stunning new type of home loan or a cock monkey who can't spell mortgage

SacharissaCripslock · 03/07/2010 13:38

DH and I paid off our mortgage 4 years ago and it was the best thing we ever did. We actually have a pretty low income (I'm disabled) but I would say we have more spare cash than people earning twice as much. Not paying out a big sum each month frees up so much money and the relief to know we are secure is huge.

Plumm · 03/07/2010 13:42

It depends what kind of lifestyle you want, but personally, I'd love to live without a mortgage. Think of the freedom you'd have regarding working -you wouldn't feel the pressure to be working until you're 60 something or be constantly looking for promotion and working long hours.

DH and I are in a situation where we might downsize into a house with a mortgage we can pay off in a few years. Some people think we're crazy, but I think we'll do it so DH can leave his high pressure job sometime in the next 10 years ( as opposed to 20).

lovechoc · 03/07/2010 13:42

we also don't have a mortgage either - it's one big monthly outgoing that most families have and we spend the money on other things like food, luxuries etc.

It's a fortunate situation to be in if you are mortgage-free, especially in this financial climate. To go out of your way to get a mortgage wouldn't really be that wise. Why pay out more money than you really need to each month.

lovechoc · 03/07/2010 13:44

It also means that only one of us has to go out and work (DH) and I am the SAHP - there's no pressure for both of us to work in order to keep a roof over our heads or to pay bills etc.

hogshead · 03/07/2010 13:44

my dad has kept a small mortguage on his bungalow - something to do with tax??? (sorry i zone out abit) He's a financial advisor so i guess he's got a good reason!

lovechoc · 03/07/2010 13:45

"Not paying out a big sum each month frees up so much money and the relief to know we are secure is huge."

That is so true

theyoungvisiter · 03/07/2010 13:49

Why don't you change your current mortgage to an offset mortgage?

Then you have the best of both worlds.

You can keep your savings in the offset, which means you pay NO interest on the mortgage, and the loan is effectively free, no matter what happens to the mortgage interest rate.

However you still have a mortgage, and would have instant access to your savings should you ever need them.

You usually have the option to repay in full any time you want without penalty, and most offset trackers operate for the length of the mortgage so no renewal fees either.

Although the mortgage is interest free (as long as your savings outweigh the mortgage) you do have to keep repaying the capital, so it effectively forces you to save. At the end of the term you therefore have no mortgage, plus you still have your offset savings.

If you have the cash, offsets are the bees knees IMO and offer max flexibility all round. Just my two pennorth...

sarah293 · 03/07/2010 13:51

This reply has been deleted

Message withdrawn

happysmiley · 03/07/2010 13:58

Your MIL benefits from having mortgages on her buy to let properties as it is tax efficient (mortgage interest can be offset against the rental income for tax purposes). So for her, the mortgage is a good thing.

For you, probably not. If the interest rate you receive on your savings is higher than the rate you pay on the mortgage, keep the savings. If the rate you receive is lower than the rate you pay, pay off the debt.

Your MIL sounds like she hasn't a clue what she's talking about but somehow got the right answer (for her) by default.

Firawla · 03/07/2010 14:05

we dont have one because we are renting but i would say definitely sounds better to pay it off and just own your own home, it would feel so secure and great!

Original poster
firsttimemum77 · 03/07/2010 14:07

Yes I agree - best being out of debt - Luckily the only debt we have is our mortgage and its only just over £400 per month - but we do over pay to reduce the term of the mortgage...

Hogshead - I guess your dad being a financial advisor knows what he is doing then...maybe my MIL isn't talking complete pants...although I hate to admit that!

OP posts:
Original poster
firsttimemum77 · 03/07/2010 14:12

I do like the idea of an offset mortgage - will look into that!

OP posts:
Rangirl · 03/07/2010 14:13

Older peopleoften think it is good to have a mortgage I think it is a hangover from when you got tax relief on mortgages

SchnitzelVonKrumm · 03/07/2010 14:13

Pagwatch, I don't understand - why would anyone choose to pay interest rather than earn it, even at derisory rates?

I think people of MIL's (presumed) vintage used to be advised to keep a small mortgage because they could claim tax relief on it, but MIRAS was abolished about 10 years ago.

Original poster
firsttimemum77 · 03/07/2010 14:19

SchnitzelVonKrumm - My MIL is just 50 years old....but my FIL is vintage compared to her - so I guess its him telling her and then her 'advising' DH...

OP posts:
30andMerkin · 03/07/2010 14:19

That info on offset mortgages is very interesting... We've been mortgage free at various points in our life, but I'm very conscious that our income gets swallowed up if we're not careful and it's too easy not to save. Are there any negatives/anything else to be aware of with them?

Original poster
firsttimemum77 · 03/07/2010 14:22

offset mortgage calculator

OP posts:
activate · 03/07/2010 14:24

there used to be a tax break for having a mortgage maybe she's talking about htat

also she's thinking of markets going up so an investment

but someone else's money paying off your mortgage, if you can cope with the stress of being a landlord and understand the change in capital gains tax is a way to go

I'm with you though - I like security and being debt free

AbFabT · 03/07/2010 14:29

Is the angle your MIL is coming at though more to do with property accumulation - suggesting you rent your current one, and upsize your own accommodation, with a view to paying that off quickly and then renting it out and moving up the property ladder, with then two owned properties behind you, and so on?

We're on track to be MF in a couple of years. Though we can't stay here for much more than that if our family expands (as we hope), so we'd have to move to a bigger place - but could then rent this one out, and the rent would cover/contribute towards the new mortgage.

theyoungvisiter · 03/07/2010 14:38

AFAIK there are no negatives with offset mortgages, except that you sometimes pay a slightly higher interest rate for the privilege of the flexibility.

However this doesn't matter of course, if you are not paying interest on your mortgage due to the offset. Effectively it's like a massive, low interest overdraft that you can access at any point.

You do have to keep repaying the capital of course - and like any mortgage your home is at risk if you stop repaying. But if you always have enough savings to repay the capital at any time then it's a theoretical risk.

You can have fixed or tracker ones. The tracker ones usually last for the term of the mortgage so you don't have to pay renewal fees every time the fix runs out.

RollaCoasta · 03/07/2010 18:02

Whatever the financial advantages of other bank-inspired deals, not having a mortgage is a brilliant feeling.

As soon as we paid off our mortgage we heaved a massive sigh of relief, and realised that our house is all ours. No-one can ever take it away from us, whatever happens with our jobs.

It is really a special feeling.

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