What makes more sense?

[SauvignonBlanche]

If you can afford it, is it better, to be mortgage-free with a little left over to spend decorating the house, or move to a better house with the downstairs loo and spare bedroom you'd like but have to take out a bigger mortgage?

I think a lot depends on your circumstances. If you're near retirement age or your income is uncertain it would be better off to go for the cheaper option. If not, the convenience of the extra space and loo would probably win for me.

Your own level of expected mobility plays a role as well - are stairs likely to become a problem any time soon?

It depends, how big is the mortgage to do option 2, how old are you and how much do you earn? In essence what is the ratio of earnings to mortgage?

We considered going almost mortgage free but felt reserved as our present middle sized mortgage will feel small in 10 years.

What about a compromise? A house that leaves you mortgage free but has the potential to build an extension?

I'd sooner be mortgage free. It depends on a lot of factors though.

I'd go for the extra space and a small mortgage, but I'm not close to retirement and expect our income to increase. So really depends on circumstances.