Borrow more on mortgage or use savings?

[InTheCludgie]

We have been house hunting a while and debating offering on a house which meets majority of our needs.

We're porting as we still have 3 years on our fixed rate and the bank are willing to lend extra on top at a higher rate. Two lots of inheritances have given us enough cash to put down a deposit of approx 60% if needs be.

If we go only with the port and don't borrow extra, we'll use up all but about 10k of our extra cash which will tyen mostly be used for internal modifications. I'm a student in my final year at uni and should get a job quite quick after graduation in May next year so money is a bit tight, but we're debating borrowing the extra to free up some of the inheritance, mostly as a buffer and to give our kids more experiences and days out.

Is that a bit crazy though? Our current mortgage is £385 a month, doable on our current income and I'll be earning a decent wage next year. But is it still crazy to take on a bigger mortgage just now? Think if we take the extra it will be about £525 a month.

Can you not port, and use the extra that would be going on the mortgage as the treat money?

@FallingAutumnLeaf the plan has always been to port but the new house costs more than our current one so we either borrow more and leave inheritance money free for treats or we plough almost all the cash into the new house but mortgage stays the same. One option has me worried in case interest rates keep going up massively and we end up with a much bigger mortgage, the other worries me that we have not much money for unforeseen repairs and/or days out.

Are you thinking we should go for the first option?

Yes, I'm suggesting porting the mortgage, and using the cash to buy the house.

Then, instead of paying the extra as mortgage, put the £140 a month into a treat account (or 70 into savings and 70 into treats).

That sounds like a safe option, means if we are having a bad month financially then we can just forget saving that extra money for a bit instead of being tied to a higher mortgage. Thanks for your input, appreciate it.

I wouldn't worry about the treat money as it's less than a year to wait and go with the lower mortgage payments. By next summer holidays you'll have more money to spend on fun days out, so it isn't that long to wait - we just did similar for nine months doing a house reno. Maxed our NT membership to the hilt, did lots of free events and took picnics and Thermos flasks to things. So still had fun, but kept costs down. We made a sort of bucket list of things we'd like to do once the finances eased.

It also gives you some flexibility if you don't find a job immediately you finish etc as your mortgage costs will still be lower.

Lower mortgage. Everyone is a bit skint/savings take a hit when they move, but it’s better to have the security of the lower mortgage payment than it is to have to just cut back on discretionary spending a bit- which both days out and non-essential home improvements come under. Different if you’ll need to spend £XX,000 on repairing a roof/electrics etc but if it can wait just a bit, then just wait. Or use 0% credit cards - at least that way any debt isn’t secured on your house.

Your future selves will thank you for your prudence!

If you want to look at it in pure mathematical terms, compare what rate the bank will lend extra to you with the rate you get on savings at the moment. If the extra borrowing mortgage rate is higher than the savings rate, don’t do it.