Mortgage free or great house?

[LaAlouette]

Firstly, this is 100% a first world problem I am extremely fortunate to have.

We are moving house. They area we are going to is expensive and we have two choices:

1. Buy a cheaper house and be mortgage-free. We could afford something that is a reasonable size with nice garden, but likely semi-detached on a narrow plot.
2. Spend an extra 150k to get somewhere detached, with a nice spacious plot.

Both would be in a good location. We have secure jobs and are in our late 30s. If we got the more expensive house we could afford to repay the mortgage in 15 years or so but wouldn’t have much left over and wouldn’t be able to save more than the bare minimum for retirement etc.

Thoughts? Do we go with the flawed house to be able to relax financially or actually do we want to spend the money to have a great house?

Great house

Which house will make you happier?

Just over a year ago we had a v low mortgage which was as near as dammit mortgage free. A house unexpectedly came up in a dream location which meant that our mortgage payment trebled, but it was the best thing we ever did. Absolutely no regrets

Mortgage free is a very fortunate position to be in at the moment. You’d be protected from the impact of interest rate rises and you would have more disposable income to cover increases in energy bills.
Before committing to a mortgage I didn’t need, I’d be calculating what would happen to our budgets with the highest available estimates of fuel costs and significantly higher mortgage rates combined, alongside high inflation in other areas too.
That said, it depends on your own priorities. I am economically very cautious - mostly because I watched my mother buy her dream home then be hit by 15% interest rates and she never really recovered financially).

We are in almost this same situation except we're early 40s. We are living in the house that will be mortgage free within a couple of weeks. It's a four bed semi with very small living space (very disproportionate to the number of bedrooms) and small garden on a nice enough estate with lots of kids for my daughter to play with. Another £150k would get us something detached, utility room, more living space, more garden and garage for storage. But I worry about the cost of living situation and my daughter missing out on so many friends close by.

What’s your current mortgage payment?

What would the mortgage payment on the great house be?

How much disposable income will you be left with each month if you opt for the great house?

We had this dilemma recently. Stay where we were (tiny, tiny house but in an amazing and very expensive location) and be mortgage free in the next 2-3 years, or move to a big detached house with large garden and have a 20 year mortgage.

We went for the big house and don’t regret it one bit. The space and privacy was worth it for us, but the maths also made sense.

Mortgage free, build up savings, move again in a few years.

In your circumstances I would go for the privacy. We currently live in a detached but have sold and are moving to another detached due to the privacy and plot size that we crave. Current house is on a newish housing estate and although detached it still feels like we're all ontop of eachother especially when using the garden, this is costing us significantly more but we spend alot of time at home and it's important to us, like you were in our 30's. Depends on your priorities, you can change a house but not the location/surroundings.

We had this issue.
Small 3 bed, with 2 kids approaching teens. Smallest room could fit a single bed in, wall to wall. Nothing else. We were a few years off being mortgage free. We're either end of our 40s.

We went for the bigger detached. 150 per month on the mortgage more than we were paying before, although we had been overpaying.

Is the council tax and gas electric that have had the biggest impact. That and finding lots to do in the house. But oh, the space. A hallway! Decent sized bedrooms! Got 15 year mortgage so if I really need to, I can extend for cheaper repayments.

This!

Mortgage free. We're disabled and worried about future prices rises, but the mortgage was paid off a few years ago and this saves me from sleepless nights.

Consider if either of you became long term ill or disabled, could you afford the mortgage on one income? Do you have cover for that? Would you have to sell the house, or could you get by ok?

Right now - go mortgage free. The whole economy is about to go tits up so why take on any mortgage if you have the option to have a LOT less financial stress?

Detached. There's nothing worse than hearing your neighbours through the wall. Our previous neighbour's teenage son used to spend hours throwing a tennis ball inside against our shared wall. We now live in a very small detached house and it's bliss.

You can take out a 25 year mortgage to lower the repayments.

Your insurance would pay out if you had the appropriate cover. My friend was diagnosed with MS and the insurance paid out..she was able to pay off her mortgage. A few years later she developed cancer and again they paid out. Hopefully the OP won't need it of course.

If paying off a £150k mortgage (which is incredibly small, as mortgages go) will take a "significant chunk" of your income, you'd be better off mortgage free.

At the minute, stay mortgage free. We're about to pay off our mortgage off and we need to worry much less about cost of living rises. I also look forward to having more disposable income for leisure and will ramp up pension/S&S ISA contributions.

I would look for somewhere with the opportunity to extend over time (bigger kitchen or fourth bedroom over the garage) so you have that option as things settle down.

We also live in a semi and have no real issues with neighbours/noise. We live in a family area but everyone is genuinely respectable.

^This

Is there such a thing as "safe jobs"?

If you work for a company for instance, how indebted is that company?

Mixed views but incredibly helpful. Our jobs are pretty safe but obviously there’s no guarantees in life. It would be a significant chunk of our income post tax because we would want to have paid it off by our mid-50s, so we can scale back our jobs if necessary. My parents suffered poor health in their 50s and I’m mindful of that.

Mortgage free definitely. Interest rates could rocket (they jumped to 15% not long after I took out my first mortgage) alongside the increases in fuel and food costs. Being mortgage free would enable you to get through this relatively comfortably.

At your age you've still got plenty of time to acquire the great house and may be able in a few years to get one much cheaper as other people who traded up, stretching themselves to do so, find that it is unsustainable in the recession. I think negative equity could come back with a vengeance sadly.

The better house

I think it depends on your lifestyle and how you view your home.
If you just see it as a base from which you can then go off and do exciting things with your spare cash then I'd go for the smaller one. Especially if both houses are in the same area that you like.
However, if your home is the most important thing to you and you will spend most of your time there, I'd go for the more expensive one.

I literally fantasise about being mortgage free. So that's my obvious choice!

I would read some of the threads on here about neighbours and I'd go for the detached one particularly as you're so young.

I would go detached every time, I value my privacy. You are still young, take the mortgage out over a longer timeframe so monthly repayments are less (and feel less scary) you can pay overpay at your own leisure with less pressure, should finances become tight. You obviously need to be disciplined with this approach. I’ve personally just taken on a reasonably large mortgage (I could have been mortgage free in an smaller house that wasn’t making us happy as a family) to get a house which works for my family and makes us happy. We’ve taken the mortgage to age 70, we could have had it over a shorter timeframe, but I don’t like to overcommit myself on a monthly basis, in case something goes wrong with one of our jobs, we could do this mortgage on one salary if needs be. For the next 2 years we will be spending lots on the house and then after than will begin overpaying the mortgage, we will never let it run to age 70. As long as you can afford it and you aren’t over committing yourself go with what makes you happy.

I'd go for the bigger house (if you can comfortably afford the mortgage payments).

You might regret not doing so now if you want to upgrade in future but it's no longer possible / affordable.

£150k isn't a huge mortgage in the scheme of things, especially if you can pay it off in 15 years. It would be lovely to be detached with a spacious plot.