Mortgage. How much to borrow.

from_atozinc

Let's say me and wife have 300 thousand cash in the bank and that is the entirety of everything we own and all our savings etc.

If we wanted to buy a house for 300k. Should we

a ) pump all of the money in to house and not bother getting a mortgage at all ( therefore no mortgage repayments, interest etc BUT all our savings and money wiped out )

b) put in 200k and get a mortgage of 100k ( so we still have 100k in savings to fall back on but then paying a mortgage and interest etc)

Above figures are high level, I know we will have to have more money put aside for solicitors, stamp duty, furnishings, builders, etc etc

I'm no expert on money but I wouldn't spend all my money on a house.
I'd leave plenty of money in the bank.
Shop around, get the lowest rate you can.
Have your savings to fall back on.

There's some new guy in the mortgage sector next year, with very low rates, maybe wait for him?
Frank money or something?

johnnyskeleton

Do you need the money for any other expenses or purchases? Most people like having some savings.

You do know that you can take out an equity release mortgage at a later stage if you want?

Personally, i would prefer to have no savings and no mortgage but if you want the comfort of a safety net then thats the better option for you.

drunkmonkey

If you still had most of your cash in the bank and a handy mortgage of €500-€700 that'd be a comfortable stress free place to be.

sword1

I think you will need to give more info,retired,family,unemployed,earnings etc ,it is hard to beat owning your home outright,but you can end up cash poor if something unexpected or an opportunity to invest come up

from_atozinc

sword1 wrote: »

I think you will need to give more info,retired,family,unemployed,earnings etc ,it is hard to beat owning your home outright,but you can end up cash poor if something unexpected or an opportunity to invest come up

Late 30's. Married. 2 kids under 3. Wife not working now on purpose (to be with kids, Creche fees etc) . She plans to work in a few years again. Based in Galway. Earnings 60K.

lalababa

If you have the money to purchase then don't get a morgage!! A morgage is a low interest loan( 4%) contract with your house as CALATERAL, to be repayed over a LOOONG period of time (15 to 35yrs.) with clauses that penalise you if you repay early. The bank always have a CHARGE over the property until the loan is repaid.
Basically if the **** hits the fan you may not only loose your savings but also your house!!

Wesser

Your concern is that you will have no cushion fund.
Well here's the reality......... Most ordinary people who take a mortgage have no cushion fund AND they a huge debt....

hognef

lalababa wrote: »

If you have the money to purchase then don't get a morgage!! A morgage is a low interest loan( 4%) contract with your house as CALATERAL, to be repayed over a LOOONG period of time (15 to 35yrs.) with clauses that penalise you if you repay early. The bank always have a CHARGE over the property until the loan is repaid.
Basically if the **** hits the fan you may not only loose your savings but also your house!!

What are you on about? Most normal variable-rate mortgages can be repaid early with no penalty of any kind. If you take out a 100k mortgage, and don't put at risk your 100k savings, you'll always be in a position to repay the mortgage in full at short notice.

Besides, for most cases of **** hitting the fan, you'll have 100k readily available to put towards a solution, as well as significant positive equity in the house (unless the market nosedives by more than 67%).

I'm not necessarily saying "take out a mortgage", but I'd really like to hear what kind of dreadful scenario you have in mind that will be so different without a mortgage, but also without savings.

CIARAN_BOYLE

generally I would tell someone that it would be nice to have 3 months salary in cash in case of emergency to use if you lose your job or have an accident in order to tide you over until you can settle insurance, or redundancy, or a loan or getting a new job so i suppose you could get a 15k mortgage if you want.

Sky King

I wouldn't like the idea of paying 3.9% on a mortgage loan if i had loads of money in the bank earning me nothing so I'd minimise the mortgage (personally speaking). Then again I don't have a family to worry about! Also nice houses are not relatively dear where I live.

It would cost less to buy in cash in the long run . But investigate the equity release option for the future in case you need a chunk of cash in a hurry.

pwurple

I would keep a cushion fund of 1 to 2 years after tax salary, put the rest in the house. You will get a good rate with low ltv (loan to value ratio).

Over pay mortgage when you can, pay it off quickly.

You always need a cushion fund. You never know when someone is going to lose their job, or the car needs replacing, or the kids need something.

phormium

I definitely would not depend on the idea of doing an equity release mortgage in the future in case you need some of the money back. These are not being done at the moment unless for home improvements so unless there is a return to boom time lending practices this is not an option. The very time when you might need this like for example being out of work sick/redundant/reduced income is when you won't get it as extra borrowing will always be firstly related to your income and not the house value.

I would keep some of my savings and get a small mortgage, you can always overpay in the future if things are going good so it's unlikely you are going to have the mortgage for the full term anyway.

If you sink all your savings into a house and it is very tempting to be mortgage free then what if you do have a need of money where are you going to get it? As well as that let's say you want to buy a car in 2 yrs time, if you don't have ready cash you may end up with a car loan which will be at a much higher interest rate than a mortgage.

Keep enough cash for anything you can anticipate needing in the coming years that you will not be able to build up sufficient savings for in that timespan again and then keep some more for unexpected expenses.

fatherted1969

I had a decent mortgage a few years ago. Came into a few pounds and lobbed it off my mortgage, nearly clearing it actually. Few years went by and the place was getting a a bit tired looking and so I trotted in to see could I get a small topup to freshen the place up a bit. The bank refused me !! Said I wasn't earning enough. Moral of the story is don't throw all your savings into the house. Keep money back in case of emergency. If you need a small mortgage then so be it

The_Conductor

A mortgage, of any amount, is going to cost you significantly more than the interest you're earning on keeping the money in the bank. That simple fact- is why I couldn't justify keeping money on deposit under any circumstance- there is no way on earth you're going to earn sufficient on it- to cover the cost of borrowing the money elsewhere.

If you have no immediate or forseeable need for the cash- there is no reason to keep it in the bank.

There are few investments these days that net 4%+ after tax- this is the simple fact to look at.

from_atozinc

The_Conductor wrote: »

A mortgage, of any amount, is going to cost you significantly more than the interest you're earning on keeping the money in the bank. That simple fact- is why I couldn't justify keeping money on deposit under any circumstance- there is no way on earth you're going to earn sufficient on it- to cover the cost of borrowing the money elsewhere.

If you have no immediate or forseeable need for the cash- there is no reason to keep it in the bank.

There are few investments these days that net 4%+ after tax- this is the simple fact to look at.

I suppose this is the way im thinking. on myhome.ie mortgage calculator, I just threw in borrowing 100,000 over 25 years at 4% and the interest on that is 58,000.

This just seems an awful waste, paying interest to banks etc

Balmed Out

Id go mortgage free unless -
You have any concerns about your job security.
You want to make changes / updates to the house your purchasing for 300,000
Ye expect to have to purchase two cars soon.

hognef

The_Conductor wrote: »

A mortgage, of any amount, is going to cost you significantly more than the interest you're earning on keeping the money in the bank. That simple fact- is why I couldn't justify keeping money on deposit under any circumstance- there is no way on earth you're going to earn sufficient on it- to cover the cost of borrowing the money elsewhere.

If you have no immediate or forseeable need for the cash- there is no reason to keep it in the bank.

There are few investments these days that net 4%+ after tax- this is the simple fact to look at.

There is a benefit in having funds available for foreseeable and unforeseeable needs. How much that benefit is worth is hard to say, but it's definitely more than 0. So you can deduct that from the cost of borrowing.

It's generally advisable to keep a few months' salaries worth in some form of liquid assets.

Bob24

I would keep a safety net of circa 20-30k to be sure I am not caught off-gard in case something happens and I have time to sort things out.

Beyond this, I personally don't see the point of getting a mortgage. As other have said the mortgage is costing you money (if you have 100k mortgage with 4% interest rate, for the first few years you will be gifting the bank 4000 Euros per year in interest repayments - and if will gradually reduce throughout the year).

Also keep in mind that if you don't have a mortgage you will rebuild your savings much faster, so the safety net concern is only valid for the first few years.

Some hard numbers to put things in perspective:

If you borrow 100k over 20 years at 4% interest rate (rates are slightly lower but you have to add insurance and throughout the duration of the mortgage your variable rate is more likely increase than to decrease given that we are now at an all times low in terms of ECB rates).

- You would be repaying 605 euros per month
- During the first 32 months, more than half the amount you would give to the bank would be interest payments, meaning less than 50% of your financial effort would actually go into paying for your house and the rest would be profit for the bank (for example, your first repayment of 605 would consist of 333 worth of interests and 272 worth of capital repayment)
- Assuming you don't make early repayment, the total cost of your 100000 euros mortgage would be 145000 euros (100000 in capital repayment and 45000 in interests payment).

KlausFlouride

Basically whatever you borrow, you will pay back + 50% interest. Borrowing 300k, will pay pack c. 450k and so forth. Keep a cushion to tide you over if get sick/lose job, other than that, it's free money for the bank and you won't get 4% interest if the cash sits in a deposit account.

ct5amr2ig1nfhp

I recommend you keep a cushion. 1-2 years salary (after tax) as another poster suggested. Get a ~100k on variable rate. Pay it off in a few years if you feel you are financially comfortable to do so. You know you will pay a tidy sum in interest back to the bank, but I would think of it as a temporary arrangement/"insurance", with the idea to pay it back, in full, early. (make sure you get a mortgage that you can pay back early without penalty).

You have a family and in particular two kids. You may need access to cash quickly at some point in the future. Do you have health insurance for the family btw? Definitely an insurance I have always tried to keep, no matter how financial stressed we have been. One of the kids had a procedure recently and it cost 1,000 EUR (took about 20mins).
Unexpected items like that could catch you out, so best have that cushion.

The_Conductor

hognef wrote: »

There is a benefit in having funds available for foreseeable and unforeseeable needs. How much that benefit is worth is hard to say, but it's definitely more than 0. So you can deduct that from the cost of borrowing.

It's generally advisable to keep a few months' salaries worth in some form of liquid assets.

Why not set aside the 4% (or slightly more) that it would have cost to borrow the funds. Its 300k- so that's 12k per annum- or a nice round 1k a month. Rebuild the buffer from scratch- and pay the 4% interest to yourself- rather than the bank? Within the year you'll have your at least 3 month's net salary built up?

PhoenixParker

If you actually need the equity release because of a family emergency or job loss, it's unlikely you'll actually be able to get it.

Given that you're a one income family, I would keep 1 year of your after tax income aside in a reasonably accessible bank account.
That will give you the cushion you need to work through anything major without panic.

Your loan to value will be low so your interest rate will be the best available.
Make sure you have flexible terms and conditions that allow you to pay off the loan ahead of schedule.
Choose a mortgage term that can save on your mortgage insurance costs, e.g. being in your late 30s, a life insurance policy for 15 years may be considerably better value then a life insurance policy for 25 years.

Butters1979

For every euro you borrow you pay back almost 2 on a 30 year mortgage. I'd go mortgage free, your 300K house is your back up.
With out any mortgage repayments you should be able to build up savings again quickly.

screamer

Having that kind of money available to invest in a house is not a usual situation. All the talk about cushions etc well, we all have these concerns, but few if any have 1 to 2 years salary in savings!
Simple math here, money in your account will earn less in interest than money you borrow at the moment.

Buy a house for 250K and keep 50K in your account which you should be able to add to, given you are a saver.

PhoenixParker

Butters1979 wrote: »

For every euro you borrow you pay back almost 2 on a 30 year mortgage. I'd go mortgage free, your 300K house is your back up.
With out any mortgage repayments you should be able to build up savings again quickly.

There's absolutely no need to pay it back over 30 years though.

ct5amr2ig1nfhp

That's only if he take the mortgage for 30 years, which would be crazy.

It would take years to build up any kind of savings given the OP's financial earnings and family situation. There would be no "quickly" about it.

Butters1979 wrote: »

For every euro you borrow you pay back almost 2 on a 30 year mortgage. I'd go mortgage free, your 300K house is your back up.
With out any mortgage repayments you should be able to build up savings again quickly.

Water John

Pwurple and Project Moose are correct. Keep about 2 years salary in a bank or invested.
Get a good LTV mortage. Should do quite well on less than 50% debt.

Don't be looking at how much interest you pay over 25/30 years. It's what makes your position secure and comfortable. Have that rainy day fund.

So Mortgage around €180K. Don't have your savings and loan in the same institution. None of their business. You make your own decisions.

StupidLikeAFox

Butters1979 wrote: »

For every euro you borrow you pay back almost 2 on a 30 year mortgage.

That does sound like a lot, but over the 30 years the interest becomes small as its swallowed up by inflation. If I bought a house 30 years ago for €25k (which would have bought a decent house Im sure), I might end up paying back €75k between then and now, which is still small money in todays terms.

OP, I would get some sort of a mortgage but also look to invest the remainder of your cash - the amount of your lump sum will stay the same over time but the value is being eroded by inflation, meaning you are losing money if its just sitting there

Water John

Sorry adjust that, Mortgage €120K, Spend €180K = House Price.

Keep €120K savings.

Pay back 5/600 per month.

That's your ball park, if you are comfortable with those repayments.

sKeith

Water John wrote: »

Sorry adjust that, Mortgage €120K, Spend €180K = House Price.

Keep €120K savings.

Pay back 5/600 per month.

That's your ball park, if you are comfortable with those repayments.

Following this method, you have already €120k built up, there is no need to add to that. Divert all moneys you would have been putting into savings into mortgage.

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.