Mortgage or Cash?

Currently looking to buy when the Covid restrictions are lifted enough to view places.

We have the option of buying cash or getting a mortgage and I'm wondering what people here would advise/do in our situation since I've no experience with mortgages etc?

TheBoyConor

buying in cash will be far far cheaper.

if u think you might need the cash you could do a 50-50 split

DubCount

I reckon this is a question you should run past an independent financial advisor.

Being mortgage free is a great aspiration, but especially if you are young and in stable employment etc., having a mortgage may not be the worst idea if it allows you to invest in pensions etc which may make your money work better for you over the next 20 years. This is a very individual question and depending on your individual circumstances, your answer may be different to someone else.

DubCount

DubCount wrote: »

I reckon this is a question you should run past an independent financial advisor.

Being mortgage free is a great aspiration, but especially if you are young and in stable employment etc., having a mortgage may not be the worst idea if it allows you to invest in pensions etc which may make your money work better for you over the next 20 years. This is a very individual question and depending on your individual circumstances, your answer may be different to someone else.

Yeah that's great advice and we've been considering contacting a financial adviser for other reasons so I guess we can lob the mortgage question in.

Thanks, DubCount.

Sleeper12

You'll pay back around 3 times what you borrow over the length of the mortgage. I'd always suggest paying cash if you have it rather than borrowing it. Better value imo. Another thing to factor in is a cash buyer offers the same or even slightly less than someone with a mortgage or in a chain then usually the cash buyer will get the property.

punisher5112

Get a mortgage but invest in a 2nd property maybe.
Really depends on financial situation of course but having the 2nd could give you a return and be useful for retirement.

Snipp

It depends where you have your cash currently invested. If you are getting an 8% return per annum currently in an investment fund or something, then taking out a mortgage @3% is a great move.

cruizer101

Sleeper12 wrote: »

You'll pay back around 3 times what you borrow over the length of the mortgage. I'd always suggest paying cash if you have it rather than borrowing it. Better value imo. Another thing to factor in is a cash buyer offers the same or even slightly less than someone with a mortgage or in a chain then usually the cash buyer will get the property.

On a 30 year mortgage at current rates you pay less than 1.5 times.
In order to pay 2 times rates would have to be ~5.3% and for 3 times would have to be over 9%.

Interest rates are fairly low at the moment to be fair but 3 times is still a lot.

A mortgage is the cheapest credit you will ever get, I would say stick a chunk of cash towards it, but no harm in a small manageable mortgage.

Cash buyer vs mortgage I don't think there is much difference, not like chain buyer.

Sleeper12

cruizer101 wrote: »

In order to pay 2 times rates would have to be ~5.3% and for 3 times would have to be over 9%.

Interest rates are fairly low at the moment to be fair but 3 times is still a lot.

A mortgage is the cheapest credit you will ever get, I would say stick a chunk of cash towards it, but no harm in a small manageable mortgage.

Cash buyer vs mortgage I don't think there is much difference, not like chain buyer.

Not saying OP should or shouldn't borrow but two points on your reply worth looking at




On a 30 year mortgage at current rates you pay less than 1.5 times.

It is worth remembering that interest rates can go up as well as down. I paid over 20 percent in the early 90s.International rates are at an all time low at the moment. That will likely continue for another 4 or 5 years but once EU economies recover rates will increase. Hopefully not into the teens but it is possible.



A mortgage is the cheapest credit you will ever get,

This is true. I have heard this exact comment for over 50 years. Even when I was paying 20 percent interest on my mortgage. It's always worth remembering that whats even cheaper again is not getting credit at all.

awec

Personally I think living totally mortgage free is an envious position. It's a massive burden taken off your shoulders, if you're a decent earner then you're likely to enjoy a very comfortable lifestyle.

I think it's hard to put an exact value on this sort of thing but if it were me I think I'd buy the house with cash and enjoy life.

Buddy Bubs

Sleeper12 wrote: »

You'll pay back around 3 times what you borrow over the length of the mortgage. I'd always suggest paying cash if you have it rather than borrowing it. Better value imo. Another thing to factor in is a cash buyer offers the same or even slightly less than someone with a mortgage or in a chain then usually the cash buyer will get the property.

My mortgage was 220k when I took it out.
Payments have varied between 900 and 950 in different fixed and variable periods, take an average of 925. 2.25 to 3.00%
30 years x 12 months x 925 is 333,000 or 1.5 times the principal.

Don't know why people insist of firing out advice on topics that they know nothing about.

Go see an advisor OP, its a free for all in here.

You'll get a full financial review and a plan. It's not all or nothing regards mortgage either, depending on circumstances you can get mortgage for the infinite steps there are between 0 and 90% of house value.

Theres the interest charge of course which is never nice but then there's the opportunity cost of using all your capital. This needs to be weighed up properly.

thomasjad

It really depends what you'd do with the cash if you didn't use it to purchase and instead got a mortgage.

Option A: Use the cash to buy. No monthly mortgage price. Saving 3-4% interest a year on the mortgage.
Option B: Use a mortgage. Invest the cash in something that gives a higher return than your mortgage rate. Example, something that gives 10% return vs your mortgage rate of 3-4%.
Option C: Use a mortgage. Keep the cash in the bank and it will lose value. Example, mortgage interest 3-4%, savings interest 1%.

Honestly, you're best off getting a mortgage if you can, it's the cheapest credit you'll ever get and invest the cash in something tangible like property or with a property investor if you can get a charge on a property.

jimmycrackcorm

Part mortgage/part cash is an optioin. Mortgage rates are very low so the cost of borrowing is not offputting. But if you invest cash, you can get a good rate of return. So if you were to get say a ten-year mortgage at circa 2% rates with half and invest the other half in an index fund that gives an annual rate of return circa 7% then you'd gain roughly a nett 5% gain on half your money.

Of course, if you buy outright with cash, then you could invest the equivalent monthly mortgage payment secure in the knowledge that you won't lose the roof over your head. If you have a public service job then that isn't a worry.

If you want to think longer term, then if you don't need to make mortgage payments every month, putting extra cash into your pension at the marginal rate probably hives the best return. Especially if you get it to a point that you could retire early.

In your position, you'd want to talk to a FA.

thomasjad

thomasjad wrote: »

Option B: Use a mortgage. Invest the cash in something that gives a higher return than your mortgage rate. Example, something that gives 10% return vs your mortgage rate of 3-4%.

If you wouldn't mind identifying this something I think everybody would like to know where to get a 10% return (presumably after taxation and without risk?) :pac:

Sleeper12

Buddy Bubs wrote:

Don't know why people insist of firing out advice on topics that they know nothing about.

You should research Irish interest rates and you will see that I do have some knowledge on the subject. My interest rates varied from 3 to 20 percent. I watched people lock in at 15 percent when I was paying 20. A few months later they were crying as rates started to fall.
I love the optimistics that think interest rates will stay low for ever. We are extremely lucky for the last 10 years or so because the EU economy has stalled. International rates have never been lower. Ever.

thomasjad

No such thing as zero risk. I'm in the property industry so coming at it from that perspective. 10% for loaning an investor funds and getting first charge on a property isn't too crazy. I'm talking pre-tax.

Buddy Bubs

Sleeper12 wrote: »

You should research Irish interest rates and you will see that I do have some knowledge on the subject. My interest rates varied from 3 to 20 percent. I watched people lock in at 15 percent when I was paying 20. A few months later they were crying as rates started to fall.
I love the optimistics that think interest rates will stay low for ever. We are extremely lucky for the last 10 years or so because the EU economy has stalled. International rates have never been lower. Ever.

Sleeper12 wrote: »

You should research Irish interest rates and you will see that I do have some knowledge on the subject. My interest rates varied from 3 to 20 percent. I watched people lock in at 15 percent when I was paying 20. A few months later they were crying as rates started to fall.
I love the optimistics that think interest rates will stay low for ever. We are extremely lucky for the last 10 years or so because the EU economy has stalled. International rates have never been lower. Ever.

In no way, shape or form are mortgage interest rates going back to anything like that level. At 15% my mortgage interest alone would be 30k a year. A 400k mortgage would be 60k a year interest. Every house in the country and indeed in europe with a mortgage would be handed back or repossessed or brought into some sort of government bail out.

My parents mortgage was at those rates but the house was 9000 euro.

Can fix for 10 years at 3.5% with bank of Ireland at the moment.

pwurple

ecoli3136 wrote: »

If you wouldn't mind identifying this something I think everybody would like to know where to get a 10% return (presumably after taxation and without risk?) :pac:

Your private pension as an example?

The tax advantages there are substantial for a start. Rather than paying 20 or 40% PAYE, live on a smaller budget, and max out the AVCs, or even put a lump sum in.
https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx

Depending on the OP's age, can put up to 40% of their gross salary into a pension and avoid the tax on it. That's a decent use of their money, depending where they are in life, what else they want it for.

You should also look at the Loan-to-value options, perhaps get a sub-50% mortgage, where the interest rates can come in around the 2% mark.

A lot depends on your aims. You can use money to make money, you can spend money on something you want to do. You might place a high value on financial security and knowing you don't have a debt.


First thing to do is make sure you are not servicing any other more expensive debts, like student loads, car loans, personal loans. Use your cash there.

Make sure your retirement is funded

Make sure your life expenses are funded (food, holiday, cars etc) from your wages and if you want to set aside some for say, a car change in 2 years.

Then see what's left, and use that to reduce the LTV on a mortgage.

Sleeper12

Buddy Bubs wrote: »

In no way, shape or form are mortgage interest rates going back to anything like that level. At 15% my mortgage interest alone would be 30k a year. A 400k mortgage would be 60k a year interest. Every house in the country and indeed in europe with a mortgage would be handed back or repossessed or brought into some sort of government bail out.

My parents mortgage was at those rates but the house was 9000 euro.

I'm going to educate you here. Average mortgage is 30 years. in 1991 you could take out a mortgage for as much as 13.3 percent. By 1992/93 we had a currency crises. Mortgage rates hit 20 percent. This was scary BUT what was really scary was the fact that the banks were paying 75 percent on overnight rates. In other words they were losing money hand over fist with me only paying 20 percent. We devalued & rates started coming down.



This might seem like a lifetime ago to you but I'm not 55 yet. Saying it couldn't happen again is like saying Natzi Germany couldn't happen again & jet almost half of America voted for Trump not once but twice! Of course it can happen again. People speculate against a currency & rates go up. Anything can happen. The EU could collapse & we revert back to punts & use interest rates to control inflation. We can say that most likely we will have low rates for the next 5 years but outside of that we are crystal ball gazing. There is no financial planner on this planet will plan for the next 30 years based on low interest rates. When you plan for the future you should never, ever rule anything out.

Buddy Bubs

Sleeper12 wrote: »

I'm going to educate you here. Average mortgage is 30 years. in 1991 you could take out a mortgage for as much as 13.3 percent. By 1992/93 we had a currency crises. Mortgage rates hit 20 percent. This was scary BUT what was really scary was the fact that the banks were paying 75 percent on overnight rates. In other words they were losing money hand over fist with me only paying 20 percent. We devalued & rates started coming down.



This might seem like a lifetime ago to you but I'm not 55 yet. Saying it couldn't happen again is like saying Natzi Germany couldn't happen again & jet almost half of America voted for Trump not once but twice! Of course it can happen again. People speculate against a currency & rates go up. Anything can happen. The EU could collapse & we revert back to punts & use interest rates to control inflation. We can say that most likely we will have low rates for the next 5 years but outside of that we are crystal ball gazing. There is no financial planner on this planet will plan for the next 30 years based on low interest rates. When you plan for the future you should never, ever rule anything out.

I'd certainly rule most of that post out when making financial decisions. I'd stress test at a couple of % like the banks do but bringing doomsday scenarios into planning would mean people would never commit to anything.
Trump has been and gone. Covid has come and nearly gone and no drastic changes to interest rates.

Bass Reeves

Sleeper12 wrote: »

You'll pay back around 3 times what you borrow over the length of the mortgage. I'd always suggest paying cash if you have it rather than borrowing it. Better value imo. Another thing to factor in is a cash buyer offers the same or even slightly less than someone with a mortgage or in a chain then usually the cash buyer will get the property.

Incorrect about 1.3-1.35 of borrow money over 25 years

Sleeper12

Buddy Bubs wrote: »

I'd certainly rule most of that post out when making financial decisions. I'd stress test at a couple of % like the banks do but bringing doomsday scenarios into planning would mean people would never commit to anything.
Trump has been and gone. Covid has come and nearly gone and no drastic changes to interest rates.

The Irish & UK government didn't expect the currency crisis. Investors & homeowners didn't expect the world banking crisis that led to the collapse of several world economies including our own & to our first property crash in Ireland. No one expects when the stock market crashes or when bitcoin takes it's next dive. It's foolish not to factor a major event into your planning


Anyway none of this is helping OP. As already stated they should get proper financial advise. The only thing I would say is that being mortage free is the best feeling in the world

Bass Reeves

Sleeper12 wrote: »

The only thing I would say is that being mortage free is the best feeling in the world

If a mortgage is the only.money you ever borrow then I would not be overerly worried. For instance if you have or intend to have children borrowing for Education down the line could be as large as mortgage borrowing but lending rates will be maybe double the interest rate. At some stage we will have another economic downturn saving may give investment opportunities.

For instance if it would make sense to hold funds to carry out improvements to the house if it is required rather than borrowing for such requirements. Personal borrowing can cost 4+% and mostly in the 5-7% bracket such as cars or lifestyle choices.

An Ri rua

Buddy Bubs wrote: »

My mortgage was 220k when I took it out.
Payments have varied between 900 and 950 in different fixed and variable periods, take an average of 925. 2.25 to 3.00%
30 years x 12 months x 925 is 333,000 or 1.5 times the principal.

Don't know why people insist of firing out advice on topics that they know nothing about.

Go see an advisor OP, its a free for all in here.

You'll get a full financial review and a plan. It's not all or nothing regards mortgage either, depending on circumstances you can get mortgage for the infinite steps there are between 0 and 90% of house value.

Theres the interest charge of course which is never nice but then there's the opportunity cost of using all your capital. This needs to be weighed up properly.

And a €1 in year one will have the same buying power as a €1 in year 30?? 1.5 times nominally. I think you might need a trip to an advisor also.

Sleeper12

An Ri rua wrote:

And a €1 in year one will have the same buying power as a €1 in year 30?? 1.5 times nominally. I think you might need a trip to an advisor also.

Totally agree.
The reverse can be said about someone's parents buying a home for 9k. It wasn't anyway near 9k in today's money. The 9k in 1969 is over 170,000 in today's money. They paid 170,000 for the house

Bass Reeves

Another factor OP is the HTB scheme which will refund you tax and dirt over last three year if you are buying a newly build house. You cannot draw this money down if you are cash buyer. If you and your partner drew 15-20 of this it's equivalent to 15-25% of the interest you will pay over 25 years on a 250k loan. The refund is enhanced to 10% of the house price at present

cruizer101

Sleeper12 wrote: »

Totally agree.
The reverse can be said about someone's parents buying a home for 9k. It wasn't anyway near 9k in today's money. The 9k in 1969 is over 170,000 in today's money. They paid 170,000 for the house

I doubt many were paying 9k for a house in 1969 it would have been a mansion.
Also from here it would be 130k now though don't see the relevance of comparing with 1969.

9k in 1990, when rates were high, is equivalent to 16k now, houses prices were far less compared to the average salary. Banks tended to only give mortgages of 2 times the primary earner + 1 times the secondary.


Regarding interest rates going up, yes they could but chances of going to mid teens again are fairly slim and kind of irrelevant to OP.
People are syaing it might make financial sense to take a mortgage and invest some of the cash elsewhere. OP is obviously in a confortable financial postition and if interest rates were to start to rise the cash investment would likely also see increased returns, if not it coudl be used to cover the mortgage anyway.

Sleeper12

cruizer101 wrote:

it would be 130k now though don't see the relevance of comparing with 1969.

According to the calculator you linked 9000 pounds in 1969 is over 160,000 euro today & not 130k.

I was just pointing out that younger people saying how cheap their parents got their houses isn't quite what they make it out to be. Every generation has had it tough at the start of their mortgage. People buying now don't have it harder than I had 30 years ago or my parents 60 years ago.

Bass Reeves

Sleeper12 wrote: »

According to the calculator you linked 9000 pounds in 1969 is over 160,000 euro today & not 130k.

I was just pointing out that younger people saying how cheap their parents got their houses isn't quite what they make it out to be. Every generation has had it tough at the start of their mortgage. People buying now don't have it harder than I had 30 years ago or my parents 60 years ago.

OP asked for advice on cash or mortgage not a leasson in what a pound was worth 30 or 50 years ago

Sleeper12

Bass Reeves wrote: »

OP asked for advice on cash or mortgage not a leasson in what a pound was worth 30 or 50 years ago

Do you suppose when making a 30 year investment decision that you should take into account what the value of the rewards will be? How do we try work out today, the true value of your investment in 30 years?



Answer: by looking at the value of investments over the last 30, 40 or 50 years. If you can't see how important it is to look back & see how the value of 9k, 90k or 900k works out after 30 years then, respectfully, as An Ri rua says in post 24

I think you might need a trip to an advisor also.

Bass Reeves

Sleeper12 wrote: »

Do you suppose when making a 30 year investment decision that you should take into account what the value of the rewards will be? How do we try work out today, the true value of your investment in 30 years?



Answer: by looking at the value of investments over the last 30, 40 or 50 years. If you can't see how important it is to look back & see how the value of 9k, 90k or 900k works out after 30 years then, respectfully, as An Ri rua says in post 24

Yes it important to look back but a kind of one up man squabble over what value a pound or euro was worth in 1970 or 1990 is not adding anything to OP question. Op has a cash lump sum in the bank at present. Deciding on spending it all on a house purchase or taking a mortgage for the house or part of the values of the house will be a life direction decision that will effect them and there family.