Does it make sense to take out as big a mortgage as possible?

J

jwof2006

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Hello :)

Just a question here as we prepare to take out our mortgage, I appreciate that the answer would depend on one's particular financial situation.

We have gone sale agreed on a house for 445,000euro, and we have a 200,000 euro deposit saved, and mortgage approval for up to 420,000 euro(Avant 4.1% 5 Year fixed). The house will likely need renovations of about 200,000 euro in the years to come.

Should I tell the broker that we would still like to loan as much as possible, as this is the cheapest loan we will ever get, and we will need plenty of cash for renovations, weddings, business ventures in the years to come? Does this make sense?

If we are doing okay financially then we can make over payments, (within the limits to avoid penalties) each year to reduce our mortgage term if we have the money to do this? Would this make sense to you guys?

Thanks,

Jack
 
Yes. Definitely take out as much as possible and also for the longest term possible e. g. 35 or 40 years as inflation will erase the repayments over the years and your repayments will also be less from day one on a 40 year loan and thus no need for overpayments and a long term mortgage with lower repayments will not adversely effect your present lifestyle [now when you are young healthy and enjoying life] .Just look back to 40 years ago re. inflation and repayments etc. and compare it with 40 years later[i.e. Today] [if we look back at the past we can see glimmers of the future said the wise investment sage.] my ten cents worth.
 
One good exercise you could do is to understand the opportunity cost of various levels of spend on your wedding in relation to overpaying your mortgage. Might help you make a few decisions on various parts of the intended celebrations.
 
Take as large a mortgage out as you can afford if you know you are going to need the cash saved for large expenses (renovations etc) in the short to medium term.

This may not mathematically be the best financial option but from a practical perspective it will give you greater flexibility. I was in a similar position and I chose to overpay my mortgage with a lump sum and then get an equity release to fund renovations. Trying to get the equity release from the bank was far more stressful than the actual renovation, and we almost walked away from the renovation. I (naively) assumed that if I gave the bank 100k there would be no issue getting the 100k back from an equity release.
 
I agree that getting a loan of the most you are allowed can be a good idea.

Unless the repayment is so high that you are very squeezed every month and then end up topping up with savings.

What percent of your take home pay will the mortgage payment represent?

If you are planning kids then you'd have to consider possible loss of some wages and/or childcare fees of 1k a month at some time in the future.
So paint a picture of that happening and see how you'd manage.
 
Thanks all, some great information there. We are going to go ahead with a bigger loan amount. Te monthly repayments will be 1,790, about 20% of our take home pay so should be manageable without many sacrifices.
 
DublinHead54 said:
Take as large a mortgage out as you can afford if you know you are going to need the cash saved for large expenses (renovations etc) in the short to medium term.

This may not mathematically be the best financial option but from a practical perspective it will give you greater flexibility. I was in a similar position and I chose to overpay my mortgage with a lump sum and then get an equity release to fund renovations. Trying to get the equity release from the bank was far more stressful than the actual renovation, and we almost walked away from the renovation. I (naively) assumed that if I gave the bank 100k there would be no issue getting the 100k back from an equity release.
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Thanks for this. I would have probably gone ahead and started overpaying also, but have learned a lot from your advice.
 
jwof2006 said:
The house will likely need renovations of about 200,000 euro in the years to come.
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jwof2006 said:
we will need plenty of cash for renovations, weddings, business ventures in the years to come?
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You really should do a Moneymakeover as there are many issues to consider here and "Borrow as much as possible" might not be correct.

What does "years to come" mean? In two years? In ten years?


It's clear you should not be taking out a mortgage now for expenditure in 10 years' time.
It's clear that you should be taking out a mortgage now for expenditure, which you can't fund from income, in 6 months' time.

What does "plenty of cash" mean?

It's clear that you don't need to borrow for money which you can fund from your income.

You need to do a best estimate of your cash outgoings over the next 5 years.

You should not be borrowing for anything you will or might be spending in 5 years' time.

If you have €200k cash burning a hole in your pocket you will probably blow a good part of it on an ostentatious wedding and be kicking yourself every time the mortgage direct debit comes in over the next 30 years.

So do a cash flow.
Take into account your own surplus income.
If you are not doing the €200k renovations for at least 5 years, then don't borrow it now.

Brendan
 
DublinHead54 said:
I was in a similar position and I chose to overpay my mortgage with a lump sum and then get an equity release to fund renovations. Trying to get the equity release from the bank was far more stressful than the actual renovation, and we almost walked away from the renovation. I (naively) assumed that if I gave the bank 100k there would be no issue getting the 100k back from an equity release.
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This is very annoying.

Banks should be more flexible but for some reason they are not.

@jwof2006

I hate recommending permanent tsb due to their long history of anti-consumer practices, but in your particular case they are worth considering.

They have a unique facility in that any overpayments are treated as credits on your mortgage account. You can't withdraw the money but you can take a mortgage break and use up the credits. So if you have overpaid by €120k and your mortgage payment is €2k a month, you don't have to make any mortgage payments for 5 years. Check the contract to make sure that this still applies.

For the same reason, I think you should avoid Avant. They do not currently do top-ups. They will probably introduce them but they will probably be much stricter than other lenders.

Brendan
 
Brendan Burgess said:
This is very annoying.

Banks should be more flexible but for some reason they are not.
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That is why it is an important point to consider. Now it may be unique to BoI but they treated an Equity Release as a fresh mortgage application, so you are at behest of their timelines and decision making. They did not care that I had 12 months before just paid of a lump sum off my mortgage.

I was using my personal experience as an example why it can make sense to take out as much mortgage as you can afford if you are fairly certain that you will have a need for the cash in the short to medium term.
 
jwof2006 said:
Hello :)

Just a question here as we prepare to take out our mortgage, I appreciate that the answer would depend on one's particular financial situation.

We have gone sale agreed on a house for 445,000euro, and we have a 200,000 euro deposit saved, and mortgage approval for up to 420,000 euro(Avant 4.1% 5 Year fixed). The house will likely need renovations of about 200,000 euro in the years to come.

Should I tell the broker that we would still like to loan as much as possible, as this is the cheapest loan we will ever get, and we will need plenty of cash for renovations, weddings, business ventures in the years to come? Does this make sense?

If we are doing okay financially then we can make over payments, (within the limits to avoid penalties) each year to reduce our mortgage term if we have the money to do this? Would this make sense to you guys?

Thanks,

Jack
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The rationale for borrowing the maximum amount is that other kinds of borrowings are at far higher rates than you'll pay for mortgage borrowing - in other words if you want to put just 50k down on the house you'll get a far better borrowing rate than if you put 190k on the deposit and just borrow 250k, but if you borrow minimum pay the max deposit, then have to borrow for say, a car, the car loan will be at 10% rather than 4-5% mortgage rates?
Some lenders offer a lower rate for "jumbo mortgages" over 250k also. But then you will have higher repayments.
But here's the difference in repayments (thanks to bonkers.ie):
400k over 30 years at the best available rate is €1,829 per month
255k over same term would be €1,166 per month
That's a whole 700 euro a month difference

But in the first instance, assuming you'll spent 10k either way on the legal costs, you'll have 190k left in the 1829 per month scenario or nothing in second scenario, but you will have a far cheaper mortgage that costs you 700 or 8400 less per year.

Why not split it and put 100k downpayment and hold back 90k? Then if you borrow €1,578 a month which is altogether more manageable? And you'll have money to spare for repairs, upgrades, a wedding, new car etc?
 
sadie said:
I agree that getting a loan of the most you are allowed can be a good idea.

Unless the repayment is so high that you are very squeezed every month and then end up topping up with savings.

What percent of your take home pay will the mortgage payment represent?

If you are planning kids then you'd have to consider possible loss of some wages and/or childcare fees of 1k a month at some time in the future.
So paint a picture of that happening and see how you'd manage.
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That's why I suggest going halfway - rather than holding onto say 145k of the 200k saved, put 100k down as a deposit - this way the repayment is 300 euro less, they'll still get a a very good rate, but they will have 90k left over for repairs and 300 euro a month more to cover other eventualities in the event that the 90k runs out.
As for the wedding, go to Leitrim or Roscommon and immediate family only.
 
Brendan Burgess said:
They have a unique facility in that any overpayments are treated as credits on your mortgage account. You can't withdraw the money but you can take a mortgage break and use up the credits. So if you have overpaid by €120k and your mortgage payment is €2k a month, you don't have to make any mortgage payments for 5 years. Check the contract to make sure that this still applies.
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PTSB were still doing this in mid 2022 when I took out my mortgage, and I think from talking to friends still buying and talking to them they still operate the same way. So the OP would still have the option of making a massive overpayment if they change their mind.
 
lff12 said:
00k over 30 years at the best available rate is €1,829 per month
255k over same term would be €1,166 per month
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Yet again I have to point out that looking at repayments is the wrong way to approach it.

Look at the interest rates and only the interest rates.

Brendan
 
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