55% Savings - Worth putting all into mortgage?

JohnCleary

Hi all,
As the title states, we currently have approx 55% savings of a mortgage price we have in mind. This is excluding a separate pocket for legals / stamp / nest-egg (which would cover a few months payments just incase).

Is there any pitfalls / extra incentive to put this much savings in? Apart from the obvious of a smaller loan amount hence paying less interest over-all.

Cheers.

theyoungchap

Nope. Reducing your mortgage by as much as possible is by far the most prudent use of your money, its not going to earn you any more elsewhere and will reduce the total cost of your mortgage.
Keep enough for the roof caving in / unemployment for a period / etc. Rainy day.
Good luck!

JohnCleary

theyoungchap wrote: »

Nope. Reducing your mortgage by as much as possible is by far the most prudent use of your money, its not going to earn you any more elsewhere and will reduce the total cost of your mortgage.
Keep enough for the roof caving in / unemployment for a period / etc. Rainy day.
Good luck!

I'm at the point in my life that we're going to pay the premium for a turn-key... when I was in my 20's bought various properties that were for refurbishment... loved every minute of it but not for me now in my ripe early 30's :pac:

Personally with such good savings I'd be slow to burn them all. I don't know the figures but as an example say you have 100k I would be very slow to use up more than 80k and probably even keep it to 70k, thus keeping 30k for yourself which you could split between a savings account for fall back and some investment.

codrulz

theyoungchap wrote: »

Nope. Reducing your mortgage by as much as possible is by far the most prudent use of your money, its not going to earn you any more elsewhere and will reduce the total cost of your mortgage.
Keep enough for the roof caving in / unemployment for a period / etc. Rainy day.
Good luck!

while I agree that it may be desirable for the op to reduce their repayments and lower their cost of interest, I disagree that the money won't earn more elsewhere. That's just disingenuous, there is of course an opportunity cost to the lower mortgage size and that would be whatever the return on the sum would be if it was invested. Mortgage rates aren't very high and the OP could very well be better off investing the whole sum of savings and drawing down a larger mortgage.

godtabh

The difference paying 90% mortgage compared to a 50% mortgage would allow savings to be made back up fairly quickly.

JohnCleary

If it makes any difference, savings are more like 300k, excluding a nest egg for all other associated costs and approx 12 months repayments.

Only other overhead will be a change of car from savings which is separate to what a mentioned in this thread.

theyoungchap

codrulz wrote: »

while I agree that it may be desirable for the op to reduce their repayments and lower their cost of interest, I disagree that the money won't earn more elsewhere. That's just disingenuous, there is of course an opportunity cost to the lower mortgage size and that would be whatever the return on the sum would be if it was invested. Mortgage rates aren't very high and the OP could very well be better off investing the whole sum of savings and drawing down a larger mortgage.

Hmmm.....I can't think of anywhere low-risk which would pay me 4% or anything like it, but I would be all-ears if there is.

The bricks and mortar will keep up with inflation in all likelihood, cash won't.

JohnCleary

Another Q I forgot to ask... I presume there is no issue with applying for under 50% LTV? Don't see why there would be, but this will be a first time mortgage application, I've never had credit in my life apart from a credit card

Sarn

No issue with the LTV. We were the same. We held back money from our savings to renovate and furnish the place.

handlemaster

JohnCleary wrote: »

If it makes any difference, savings are more like 300k, excluding a nest egg for all other associated costs and approx 12 months repayments.

Only other overhead will be a change of car from savings which is separate to what a mentioned in this thread.

Nice savings.. well done

Eric Cartman

could you use the cash to part fund say 2-3 apartments , they'll make a rental return that would more than cover the cost, 4% yield on a rental would be a bad time, you'd be profiting.

theyoungchap

Eric Cartman wrote: »

could you use the cash to part fund say 2-3 apartments , they'll make a rental return that would more than cover the cost, 4% yield on a rental would be a bad time, you'd be profiting.

Wait for the (inevitable) crash I say......it'll happen and that's when you need to be ready.

JohnCleary

Eric Cartman wrote: »

could you use the cash to part fund say 2-3 apartments , they'll make a rental return that would more than cover the cost, 4% yield on a rental would be a bad time, you'd be profiting.

Christ no!!! NO NO NO!!!! :P

Bought some properties in my early 20's when the crash was at it's peak (IMO). It was a fun few years, but i've sold it all (it felt like the right time) and I have no interest in being a LL (for now, anyway)

So, what you recommended, is what i'm just after getting out of.

Fol20

I would recommend buying at a ltv of 50pc. At least that way, you get the best rate and you will still have the extra 5pc in cash reserve to invest or save.

JohnCleary

Fol20 wrote: »

I would recommend buying at a ltv of 50pc. At least that way, you get the best rate and you will still have the extra 5pc in cash reserve to invest or save.

Do you get a better rate with the lower LTV you are looking for? TBH I already have a reserve (as you can see above, inc. a replacement car which will be soon), so wondering if there's any reason NOT to put in as much as possible.

Fol20

JohnCleary wrote: »

Do you get a better rate with the lower LTV you are looking for? TBH I already have a reserve (as you can see above, inc. a replacement car which will be soon), so wondering if there's any reason NOT to put in as much as possible.

Yes you would get a lower rate. Each bank can vary. Some have their lowest ltv at 50 Nd others 60pc so if your thinking of committing a lot of funds in one go. I’d go with the cheapest ltv the bank your going to go with offers. Hold off on the other 5pc to reasses the situation 1 year after it’s bought so you have a small extra reserve for miscellaneous items that come up in your purchase. At that stage decide if you you want to do a lump sum payment, save or build up money for another investment opportunity.

Another question I would ask yourself is how quick can you build up a fund of say 50-100k it’s much easier to have free liquid cash instead of it being tied to an ill liquid ppr asset.

You have already invested in multiple houses already so you know the game at this stage but it might be handy to have a cash reserve in case another oppurtunity arises in houses or another business venture. I’m not saying real estate will crash soon( I hope it doesn’t as Iv invested heavily recently) but it’s hard to put a price on having a decent cash reserve.

ouxbbkqtswdfaw

Eric Cartman wrote:

could you use the cash to part fund say 2-3 apartments , they'll make a rental return that would more than cover the cost, 4% yield on a rental would be a bad time, you'd be profiting.

As a landlord I'd advise to keep away from rentals. Too many variables. Pay down your mortgage for an easy life.

handlemaster

1t0ocweuxhijfy wrote: »

Eric Cartman wrote:

could you use the cash to part fund say 2-3 apartments , they'll make a rental return that would more than cover the cost, 4% yield on a rental would be a bad time, you'd be profiting.

As a landlord I'd advise to keep away from rentals. Too many variables. Pay down your mortgage for an easy life.

Its mine field out there . The socialist are now demanding indefinate contracts

ted1

theyoungchap wrote: »

Nope. Reducing your mortgage by as much as possible is by far the most prudent use of your money, its not going to earn you any more elsewhere and will reduce the total cost of your mortgage.
Keep enough for the roof caving in / unemployment for a period / etc. Rainy day.
Good luck!

Unless they have other loans such as cars. A mortgage is the cheapest loan you can have. Choose it over other loans

Q&A

Rule of thumb is pay down debt first but cashback offers make it worth waiting a month or 2.

With banks offering 2% cashback take out as big a mortgage as you can. Regardless of higher interest rate s the 2% will make it worthwhile in the short term. You can either look to switch and repeat the process with another bank.

kaymin

theyoungchap wrote: »

Hmmm.....I can't think of anywhere low-risk which would pay me 4% or anything like it, but I would be all-ears if there is.

The bricks and mortar will keep up with inflation in all likelihood, cash won't.

Exactly, in fact you would need 6% risk free returns to cover the 4 % mortgage interest once tax is taken account of.

The_Conductor

Look at it purely from a financial perspective.
At the moment you have 200k (or however much) in cash- that is not generating a return.
Do you have any finances with a cost associated with them (overdrafts, credit cards, term loans, car loans, etc etc)- if so- clear them first.
Once you are fully in the clear of any other debt- the remainder is still sitting there not generating a return.

I was going to suggest an investment property- if you were looking at generating a return- however, you're getting out of the sector (as is everyone I know)- so thereafter- its a numbers game- shop around with the various financial institutions- see what your options are at various LTV and absolute cash amounts- over various terms. I'd be inclined to borrow as much as possible for the lowest possible price- over the longest possible term- with the intention of overpaying if/when the opportunity arise- but I'd be looking at the best value fixed rate products given the current environment.

We don't really have enough information to give you a lot of advice- but I wish you all the best- being in a position to have an LTV of under 50% is an extremely admirable and enviable position- my sincere congratulations on managing to get yourself into that situation.

codrulz

theyoungchap wrote: »

Hmmm.....I can't think of anywhere low-risk which would pay me 4% or anything like it, but I would be all-ears if there is.

The bricks and mortar will keep up with inflation in all likelihood, cash won't.

seriously, In the biggest bull run in history you think a low risk 4% ROI is unlikely?? bonds would offer you that low return of 4%, other financial instruments exist that aren't savings accounts. Investing in bluechips is considered as low a rik as investing in bonds and of course depending on the bonds and company, may actually be of lower risk.

Try_harder

Having a LTV Of <50% is very desirable to lenders and you will get the best rate on offer.

kaymin

codrulz wrote: »

seriously, In the biggest bull run in history you think a low risk 4% ROI is unlikely?? bonds would offer you that low return of 4%, other financial instruments exist that aren't savings accounts. Investing in bluechips is considered as low a rik as investing in bonds and of course depending on the bonds and company, may actually be of lower risk.

Sounds like the voice of inexperience here. Most 1- 2 year euro government bonds yield negative returns at the moment. 10 year government bonds won't give you even 1%. If you want anything above 1% you need to risk losing your money. We're entering a increasing interest rate environment and an ending of quantitative easing - maybe you don't know what that means but it will cause bond prices to fall and a switch from risky assets such as equity markets to low risk assets. No-one can predict the future but personally I'd be decreasing my indebtedness now if I had the choice.

Hi OP, assuming you're going for a 25 year mortgage:

300k savings = 55% of drawdown, so a mortgage of €545k

1) 79% mortgage @ 2.95%

Total payments: €771k
Interest component: €226k

2) 36% mortgage @ 2.75%

Total payments: €366k + €300k savings
Interest component: €102k

The latter only really makes sense if you also intend to either reduce your mortgage term to match the repayments of option 1 but finish quicker.

If you did that, you could be mortgage free in 9 years and have only paid €31k in interest.


Interest rates will vary, but even though we remain the highest in the Eurozone I don't think that will insulate us from mortgage rates starting to creep up as ECB monetary policy changes.

Get the lowest capital mortgage you can, for the lowest term you can afford, and you can invest future earnings worry free knowing that you fully own your own home.

codrulz

kaymin wrote: »

Sounds like the voice of inexperience here. Most 1- 2 year euro government bonds yield negative returns at the moment. 10 year government bonds won't give you even 1%. If you want anything above 1% you need to risk losing your money. We're entering a increasing interest rate environment and an ending of quantitative easing - maybe you don't know what that means but it will cause bond prices to fall and a switch from risky assets such as equity markets to low risk assets. No-one can predict the future but personally I'd be decreasing my indebtedness now if I had the choice.

Sounds like the voice of ignorance here. I didn’t once mention short term euro bonds, perhaps I was referring to corporate bonds.
That’s just totally untrue, there are government bonds that offer over 1%, sure inflation may be greater than the coupon but the return still in absolute terms is over 1% in some cases. Also there are some savings accounts that also offer more than 1%.
So what? Perhaps the OP is willing to make risk-weighted decisions in an attempt to make more money than they otherwise would. Maybe some people aren’t afraid of risk, like you.
Oh you caught me, I don’t know some of the most basic actions central banks can take. Also, sure rates are going to rise; but they’re not going to rise in the next few months.
Sure, lower debt is probably the most ideal position to be in, I was just highlighting the fact that there is a viable alternative, I was hardly advocating it.

JohnCleary

Many thanks for all the info folks, food for thought.

s7ryf3925pivug

If you have a mortgage then the best investment is to pay off your mortgage. If you don’t have a mortgage, then the best investment is to put the max part of your income that qualifies for tax relief into your pension.