Mortgage. How much to borrow.

from_atozinc

thanks for all the replies.
So seems there is divided opinion here but most of the people say to get some sort of a mortgage and to not throw all our savings etc in to a house.

im still divided myself after all the replies, just hate giving the banks interest money when I could be done and dusted with it, but then I have to think about the rainy day........but if you were mortgage free, the rainy day would not be so daunting. still confused

MarkAnthony

There is the basic figures to consider on interest, you'll pay more having a mortgage then you'll ever make in interest on savings (for at least the next decade) however there is an inflationary element to consider. That's been stated above but just to add a lateral approach here.

Firstly some properties will not be suitable for a mortgage. If you're willing to put in the research and have the savvy about you when dealing with builders etc. you might net yourself a bargain. Even where a mortgage is possible there is a significant advantage to being a cash buyer. You may find that the savings netted there might justify going all in.

sKeith

from_atozinc wrote: »

thanks for all the replies.
So seems there is divided opinion here but most of the people say to get some sort of a mortgage and to not throw all our savings etc in to a house.

im still divided myself after all the replies, just hate giving the banks interest money when I could be done and dusted with it, but then I have to think about the rainy day........but if you were mortgage free, the rainy day would not be so daunting. still confused

You are paying (interest) for the option of a safety net. 120k is a huge safety net, you can have much smaller safety net.

You can also have no safety net at all, but that is risky.
Maybe you enjoy risk. No med insurance, no car insurance etc. See that safety net as 'quality of life' insurance.

If i was you I'd buy the house outright.
There's nothing like owing nobody anything. You have a decent salary and if anything drastic happens you have options such as short term borrowing on your asset or your wife going back to work.

seamus

from_atozinc wrote: »

thanks for all the replies.
So seems there is divided opinion here but most of the people say to get some sort of a mortgage and to not throw all our savings etc in to a house.

im still divided myself after all the replies, just hate giving the banks interest money when I could be done and dusted with it, but then I have to think about the rainy day........but if you were mortgage free, the rainy day would not be so daunting. still confused

The rainy day isn't that important tbh. There's not going to be a rainy day that requires €300k to bail you out. Or even €50k.

Even if you spend everything on the house, you'll be able to save yourself a good rainy day fund within a year by ensuring you keep putting away savings.

I would advise you to go looking and make a decision when you've found the house you want.

You might find the property that you love @ €300k, but it's 20 or 30 years old. In this case there will be things that need to be done, you're going to end up throwing between €10k and €30k at it in the first few years to get it up to scratch.
In this case, if you take a mortgage for €100k (the minimum you'll get), you have that money there to get the works you need done to the house. Once you're happy with the house you can throw the rest of your savings at the mortgage and have it all paid off in a couple of years.
In effect, you'd be taking out a super low-cost home improvement loan.

On the other hand you might find a brand new build that needs no work at all. In this case, you'd be ridiculous to take out a mortgage "just in case".

MouseTail

In your situation OP, I would keep enough to fund lost years of a pension (if you don't have one), a rainy day fund of 6 months salary and enough to kick start college funds for the children. The remainder can be put as cash into a house purchase.

Irish_rat

I'd get a small mortgage and keep a safety net of about 100k of savings in place. You definitely shouldn't buy off the house fully in case you need that extra cash for any emergemcies/job loss etc

I'm surprised anyone is advising the op to use up all the savings to be honest. I'd see it as madness to pump everything into the house when you could easily keep say 100k in the bank and have a small mortgage of only a few 100 per month which you can over pay on to clear quickly and really the interest you are paying is well worth it to keep a 100k in the bank for what ever I'm the future.

Remember a mortgage is the cheapest money you can borrow so spending all your saying now and then maybe end up needing a car loan or personal loan in a few years paying 10% interest would not be wise.

seamus

Alaina Tinkling Scene wrote: »

I'm surprised anyone is advising the op to use up all the savings to be honest. I'd see it as madness to pump everything into the house when you could easily keep say 100k in the bank and have a small mortgage of only a few 100 per month which you can over pay on to clear quickly and really the interest you are paying is well worth it to keep a 100k in the bank for what ever I'm the future.

Remember a mortgage is the cheapest money you can borrow so spending all your saying now and then maybe end up needing a car loan or personal loan in a few years paying 10% interest would not be wise.

Yeah, but you're basically paying the bank for the convenience of having a large sum of cash on hand.

Realistically what purpose will it serve? When is the last time you heard of anyone needing to come up with a large chunk of cash with a couple of days notice.

With no mortgage, you can stick that few hundred euro a month into savings and within a couple of years you'll have a decent safety blanket and no mortgage at the same time.

In the event that you did need €50k for whatever, you can go borrow against the house for your cheap cash.

Just to note on the "cheapest money you'll ever borrow" line, you still need to do sums. €100k @ 4% over ten years will cost you €21,000. A €30k car loan might be 10% over five years, but it'll still only cost you €8,500.

Spending €2,000 a year on interest just so you can have cash on hand is not sound financial planning unless you have very specific circumstances that require that level of liquidity.

seamus

seamus wrote: »

Spending €2,000 a year on interest just so you can have cash on hand is not sound financial planning unless you have very specific circumstances that require that level of liquidity.

I would see not keeping a decent amount of cash as poor financial planning to be honest. Who knows what you might want or need it for but if I had lots of cash savings there is no way I wouldn't hold on to a decent chunk of them when I could just get a small mortgage to make up to difference.

Its a philosophy I very much stick to myself, for example my last car I could easily have bought outright with cash but instead I got a credit union loan (lower interest rate as I borrowed against my savings) for half the value of the car rather than use up a lot of my savings. I was perfectly happy to pay the bit of interest to keep money in savings and would be the very same with a mortgage.

The peace of mind alone of knowing you have a 100k in the bank should you need it or just want a chunk of it for something else would be fantastic.

seamus

Alaina Tinkling Scene wrote: »

The peace of mind alone of knowing you have a 100k in the bank should you need it or just want a chunk of it for something else would be fantastic.

I agree. But would I pay €2k a year for that peace of mind? No.

Holding onto €10k or €20k "just in case" isn't a bad idea. Big expenses do occasionally appear and having enough funds there to cover it is really nice.

But €100k is an exceptional amount to have just in case. The kind of unexpected expenses that would need €100k or even half that to cover them, are the kinds of expenses you should be insuring anyway.

It is bad financial planning to pay for the convenience of liquid cash, unless you know you're going to need it or can reasonably expect to need it. Peace of mind is an emotive decision rather than a logical one.
LIke paying for volcano insurance in Co. Mayo. You might like the peace of mind, but it's a poor financial decision.

Ush1

You're in a great position. Just remember a mortgage has a price tag at the end of the day and you realistically don't need anywhere near 100k in cash hoarded somewhere.

I'd pay outright and pay yourself the interest/would-be repayment to rebuild the savings. That it the most financially prudent option.

Balmed Out

MarkAnthony wrote: »

There is the basic figures to consider on interest, you'll pay more having a mortgage then you'll ever make in interest on savings (for at least the next decade) however there is an inflationary element to consider. That's been stated above but just to add a lateral approach here.

Firstly some properties will not be suitable for a mortgage. If you're willing to put in the research and have the savvy about you when dealing with builders etc. you might net yourself a bargain. Even where a mortgage is possible there is a significant advantage to being a cash buyer. You may find that the savings netted there might justify going all in.

This is a very good point. Keep an eye out for properties that have sales fallen through, been on the market for a while or have a low asking price. Receivers will often sell on an as seen basis and not spend the money on remedial works etc that would make the house worth a lot more. There are often receivership properties which may have no certificate of compliance and thus cannot be bought with a mortgage. I have bid but didnt have enough cash on two of these.
In one case some boundary issues and small building works and a planning retention and certificate of compliance later and someone had a 300k home for a 200k outlay. The other is more recent and possibly a little more complex as it involves a neighbours septic tank but could be even better value.
Theres obviously more risk especially if you needed to sell in the short term but you could have your cake and eat it if an appropriate property is in the area you want to purchase. You need to be more careful to make sure you have your ducks in order but I certainly would be looking at this in your shoes. Have someone else ask local real estate agents about any receivership sales (no point letting them all know your purchasing power).

Irish_rat

seamus wrote: »

Spending €2,000 a year on interest just so you can have cash on hand is not sound financial planning unless you have very specific circumstances that require that level of liquidity.

Not necessarily. It depends what you do with your savings. Investing in a high dividend US blue chip might have a better return than what you're losing on the mortgage. But yes the first few years of a mortgage is the most expensive.

The_Conductor

OP - do you forsee needing a large lumpsum in the immediate future?
If so- plan accordingly.
If not- spending a few shekels on an independent financial advisor- would be money well spent.

from_atozinc

The_Conductor wrote: »

OP - do you forsee needing a large lumpsum in the immediate future?
If so- plan accordingly.
If not- spending a few shekels on an independent financial advisor- would be money well spent.

no, nothing specific. well maybe in 18 years time when children go to college maybe ! or extra money for when we retire in 30 years time.
but nothing immediate.

you might be right

sword1

I think you should go the mortgage free route ,why go jumping through hoops to get a mortgage if you don't have to,also I am no expert as I have not gotten a mortgage in a good few years but there's other costs with getting one,extra survey,mortgage protection , maybe time off work to meet them,legal fee's,i am sure someone on here could give the correct list , idea of costs

Carawaystick

Whatever the OP does, he should split the lump sum to make sure its covered in the deposit guarantee scheme among several institutions, to be below the 100k deposit guarantee scheme limit.

mgadget

OP, it is assumed you are paying rent your present accommodation, is this correct?
It is not clear if your cash is a windfall or the result of saving and investments?

If I was renting then buying makes sense. I would only recommend buying outright if you already had some ability to save money every month. I would then expect to save an amount equivalent to a mortgage or rent payment each month for so long as I am earning an income. Personally I would buy a home valued at no greater than that which I could obtain with a mortgage derived from income + 30% deposit. In your case 60k x 3.5 = 210k + 90k, or 300k. Does that afford you a home in a location equivalent or better than your present location? Can you see yourself happily saving €1000 a month when rent and mortgage free?

from_atozinc

mgadget wrote: »

OP, it is assumed you are paying rent your present accommodation, is this correct?
It is not clear if your cash is a windfall or the result of saving and investments?

If I was renting then buying makes sense. I would only recommend buying outright if you already had some ability to save money every month. I would then expect to save an amount equivalent to a mortgage or rent payment each month for so long as I am earning an income. Personally I would buy a home valued at no greater than that which I could obtain with a mortgage derived from income + 30% deposit. In your case 60k x 3.5 = 210k + 90k, or 300k. Does that afford you a home in a location equivalent or better than your present location? Can you see yourself happily saving €1000 a month when rent and mortgage free?

We are good at savings, so if we had no mortgage, we could save the money we are paying in rent now plus the money I save now, so yes 1000 a month would be achievable.

seamus

sword1 wrote: »

I think you should go the mortgage free route ,why go jumping through hoops to get a mortgage if you don't have to,also I am no expert as I have not gotten a mortgage in a good few years but there's other costs with getting one,extra survey,mortgage protection , maybe time off work to meet them,legal fee's,i am sure someone on here could give the correct list , idea of costs

To be fair, the monetary cost of getting a mortgage is very low. The only thing off the top of my head is the bank's valuation which is about €150.

All of the other costs you will (should!) incur anyway as part of the purchase, if your solicitor does the proper set of checks.

The main pain in a mortgage is time and emotion as the bank asks for extra copies of documentation or updated copies of things a week before signing, requiring a sprint around the city to get sorted, etc etc.

from_atozinc

OP here again.
No suitable house has come up since, so still looking !

To refresh you on the situation.

My wife and I have 300k saved. This is all our savings etc.
I work for a large multi national and earn 60k a year. Have a pension and health and life insurance via work. They pay my phone bill and broadband too.
My wife does not work in a job and stays at home with kids (no creche fees).
The 2 kids are under 3.
Currently I pay 1000 Euro a month in Rent and Save 500 euro a month and manage fine.
We have no car loans, cars are fine for at least another 3 years.
We have no other loans.


The above looks fairly good on paper, I think.
But Just on the idea of even getting a mortgage in the first place. if I wanted to get 100k of a mortgage, would I even get one.
Based on my salary and only 1 earning and having 3 dependents and being in late 30's ?

from_atozinc

OP here again.
No suitable house has come up since, so still looking !

To refresh you on the situation.

My wife and I have 300k saved. This is all our savings etc.
I work for a large multi national and earn 60k a year. Have a pension and health and life insurance via work. They pay my phone bill and broadband too.
My wife does not work in a job and stays at home with kids (no creche fees).
The 2 kids are under 3.
Currently I pay 1000 Euro a month in Rent and Save 500 euro a month and manage fine.
We have no car loans, cars are fine for at least another 3 years.
We have no other loans.


The above looks fairly good on paper, I think.
But Just on the idea of even getting a mortgage in the first place. if I wanted to get 100k of a mortgage, would I even get one.
Based on my salary and only 1 earning and having 3 dependents and being in late 30's ?

Cyrus

from_atozinc wrote: »

OP here again.
No suitable house has come up since, so still looking !

To refresh you on the situation.

My wife and I have 300k saved. This is all our savings etc.
I work for a large multi national and earn 60k a year. Have a pension and health and life insurance via work. They pay my phone bill and broadband too.
My wife does not work in a job and stays at home with kids (no creche fees).
The 2 kids are under 3.
Currently I pay 1000 Euro a month in Rent and Save 500 euro a month and manage fine.
We have no car loans, cars are fine for at least another 3 years.
We have no other loans.


The above looks fairly good on paper, I think.
But Just on the idea of even getting a mortgage in the first place. if I wanted to get 100k of a mortgage, would I even get one.
Based on my salary and only 1 earning and having 3 dependents and being in late 30's ?

given that the bank will have a full charge over the entire property you should be fine (i.e. a loan for 100k v an asset of 300k)

also you meet the deposit rule and the 3.5x earnings

Snakeblood

from_atozinc wrote: »

OP here again.
No suitable house has come up since, so still looking !

To refresh you on the situation.

My wife and I have 300k saved. This is all our savings etc.
I work for a large multi national and earn 60k a year. Have a pension and health and life insurance via work. They pay my phone bill and broadband too.
My wife does not work in a job and stays at home with kids (no creche fees).
The 2 kids are under 3.
Currently I pay 1000 Euro a month in Rent and Save 500 euro a month and manage fine.
We have no car loans, cars are fine for at least another 3 years.
We have no other loans.


The above looks fairly good on paper, I think.
But Just on the idea of even getting a mortgage in the first place. if I wanted to get 100k of a mortgage, would I even get one.
Based on my salary and only 1 earning and having 3 dependents and being in late 30's ?

Not A Banker but it sounds fine to me from the banks point of view. If they lend you 100 grand, to buy a 400 grand house, and you lost your job, you'd have an asset worth 400 grand currently, and it's (probably) not going to lose 75% of its value if they need to sell it.They'll get their money one way or the other.

from_atozinc

Thanks, I then see quotes like this on websites.

"We estimate that a single person will need approximately €1,300 to live on, each month. We estimate that a a couple will on average spend €2,100 per month.and we estimate an additional €250 per child."

So the banks reckon I will spend 2600 a month before I even think of paying a mortgage.
Which does not leave a whole lot of money after this with my net Salary.

Cyrus

from_atozinc wrote: »

Thanks, I then see quotes like this on websites.

"We estimate that a single person will need approximately €1,300 to live on, each month. We estimate that a a couple will on average spend €2,100 per month.and we estimate an additional €250 per child."

So the banks reckon I will spend 2600 a month before I even think of paying a mortgage.
Which does not leave a whole lot of money after this with my net Salary.

easiest thing to do is just apply for approval in principal you will have a fair idea then

CelticRambler

I would take a much more simplistic approach: 300k in the bank, 60k salary paying 12k rent, so you need 50k "cash in hand" to get you through a year's unemployment. So I'd look for a house selling for (300-50 250k, and live mortgage free. If you can't find the right house for that price, then keep saving. If you can find an investment product that gives you an interest rate equivalent to what you'd pay on a mortgage, then maybe it'd make sense to top up your house-fund up with a 50-100k mortgage, but I'd be wary of that.

Snakeblood wrote: »

If they lend you 100 grand, to buy a 400 grand house, and you lost your job, you'd have an asset worth 400 grand currently, and it's (probably) not going to lose 75% of its value if they need to sell it.They'll get their money one way or the other.

Way back in my twenties, I took out a mortgage but accepted 2/3rds of what the bank were prepared to offer; that worked out very well for me when I changed income pattern (went self-employed), and even better when I decided to give up that lifestyle altogether. I sold the house at the right time, paid off the mortgage and bought another for cash. For unrelated reasons, a few years later, things got really rough financially, and even though the family had to endure an awful lot of "austerity" it was a great consolation to know that we had our home and no-one would be trying to take it from us. Just because you've got a relatively small loan doesn't mean the lender won't force you to sell ...

Michael D Not Higgins

from_atozinc wrote: »

Thanks, I then see quotes like this on websites.

"We estimate that a single person will need approximately €1,300 to live on, each month. We estimate that a a couple will on average spend €2,100 per month.and we estimate an additional €250 per child."

So the banks reckon I will spend 2600 a month before I even think of paying a mortgage.
Which does not leave a whole lot of money after this with my net Salary.

Depends on how much of a mortgage you intend to get. If you're on 60k you have a net of ~3700/month which leaves capacity for ~1100/month which would cover a fairly sizeable house price when you consider the massive savings you have.

davindub

if you have no plans for the money, spend it on the house, but mortgages are cheap at the moment, <50% circa 3.1%?

You might argue the cost of the mortgage will not keep pace with the rate of inflation and you may be able to get better return by investing, for example get a mortgage and buy a rental property.

But whatever you are most comfortable with!