Largest Mortgage possible vs small Mortgage and owning a home outright sooner?

PGF2016 said:
There comes a point where you don't need the best house and location you can afford.

In my own case between savings and the amount we were mortgage approved for we could have gotten a seven figure house. We bought an excellent house in an excellent location that is more than big enough and spent a bit over half of what we could afford (if you consider the amount we were approved for the amount to be the amount we could afford).

We're not the only people in that (very fortunate) position. And I'd suggest the OP might be in that position also.
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depending on when you bought an excellent house in an excellent location might have been a lot more affordable than it is now.
 
markodaly said:
My thinking is this...
If house prices rise by say 10% over the next 3 years (which is conservative imo) then a 10% rise of a house of 300k is a capital gain of 30k, but a 10% rise of a house worth 600k is a capital gain of 60k which being its ones primary residence is a tax-free capital gain. If this house is your forever home then the return will be greater again in 10-20-30 years...
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For mortgages I typically borrow as much as I can for as long as I can at as low an interest rate as I can on the house I have in mind. My reasoning is that capital that I hold back from contributing to the mortgage can be put to work in investing at a significantly higher rate (even after capital gain tax is account for)
You cited a tax free capital gain of simple 3.3% per annum in your example above.

Very broad strokes: invest your retained capital in the S&P500 index and based on historical simple returns since 1957 you'll average out 10.5% return per annum before tax.

In short we're talking about opportunity cost here.

Oh & reconsider going for a bigger house if that is where your head is at. I predict that in the future there will be deeper penalties / higher carbon taxes for people living in larger houses similar to those that drive larger engine/ higher emission cars.
 
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Blackrock1 said:
depending on when you bought an excellent house in an excellent location might have been a lot more affordable than it is now.
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The point still stands. You don't need to get the best house in the best location you can afford.

And in any case we only bought a few years ago so they were not a lot more affordable than now.
 
PGF2016 said:
The point still stands. You don't need to get the best house in the best location you can afford.

And in any case we only bought a few years ago so they were not a lot more affordable than now.
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Where i am in the 5 years since i bought the prices have increased 40% (based on a recent sale v what the house was purchased for new) id argue that is a substantial difference.

Anyway i think we disagree, if its affordable to you you should get the best you can, but i dont just see my house as somewhere to clean, i enjoy living in it and the surrounding area, if you have a more utilitarian view then you can make a more pragmatic financial decision.
 
I remember a secondary school teacher back in the early 80s authoritatively telling us that when it came to buying a house we should all borrow and buy as big as possible. I disagreed with him then. I still disagree with that as a general rule of thumb.
 
Blackrock1 said:
Anyway i think we disagree, if its affordable to you you should get the best you can, but i dont just see my house as somewhere to clean, i enjoy living in it and the surrounding area, if you have a more utilitarian view then you can make a more pragmatic financial decision.
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I think you're missing my point.

I enjoy living in my house. The surrounding area is excellent. The local services and public transport are excellent (for Ireland). I'm not settling for less to save a few pennies.

My point is that I didn't need to buy the best house I could afford to get that.

And in the context of this thread I think the same could be said of the OP.

But yes - we disagree.
 
PGF2016 said:
I think you're missing my point.

I enjoy living in my house. The surrounding area is excellent. The local services and public transport are excellent (for Ireland). I'm not settling for less to save a few pennies.

My point is that I didn't need to buy the best house I could afford to get that.

And in the context of this thread I think the same could be said of the OP.

But yes - we disagree.
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thats not clear from the opening post. He said he could buy a nice 3 bed semi in cork, that may not be in his preferred suburb. Also with 2 kids a 3 bed is going to be at the lower end of comfortable for a family of 4 size wise imo.

i could have spent half what i did and had little or no mortgage but it would have to be in a different location. there hasnt been a day that i looked back and thought i should have done that.

you were in the fortunate position of being able to get a house that you felt suited you in a location you liked, so i assume your only consideration then was whether or not to get a bigger house in the same area?
 
ClubMan said:
I remember a secondary school teacher back in the early 80s authoritatively telling us that when it came to buying a house we should all borrow and buy as big as possible. I disagreed with him then. I still disagree with that as a general rule of thumb.
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Your teacher was close but not quite right:

Should borrow and buy as big as possible for the house you want & can afford. So max out the mortgage credit line as far as you can for the house that you want & can afford.
I'd agree with that.
 
Horatio said:
Your teacher was close but not quite right:

Should borrow and buy as big as possible for the house you want & can afford. So max out the mortgage credit line as far as you can for the house that you want & can afford.
I'd agree with that.
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I also agree but that's quite different to what he advised.
 
It's interesting how different people see this in such different ways.

Assuming future income was "safe", and employment /career progression prospects reasonably good, I'd be going for the max homeloan, to get the best house that I could buy.

Your home is not an investment, its the place where you live, maybe raise a family, and find long term happiness. As such, it's down to a question of quality of life, not return on investment. I'd want to live in the nicest, best located house, that I could afford, and think it's worth paying a premium to try and get a home that you really like.

What's the point in "settling" for a house that you may not really like, or in a location that you don't really like, possibly having a longer commute, limited infrastructure, possible social issues etc.?
 
ClubMan said:
It's all of those.
Including an investment.
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It's not an investment - you need to factor in the cost of providing accommodation, which is a basic life-long need, unlike with investments. You don't acquire a home with the sole intention to generate a net positive cashflow, or future gain on the capital.
 
MrEarl said:
What's the point in "settling" for a house that you may not really like, or in a location that you don't really like, possibly having a longer commute, limited infrastructure, possible social issues etc.?
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I've been the most vocal in saying that you don't need to spend your full mortgage approval amount to get the best house possible.

I certainly didn't and wouldn't suggest settling on something less than ideal and I don't think anyone else has suggested this either.
 
MrEarl said:
It's not an investment - you need to factor in the cost of providing accommodation, which is a basic life-long need, unlike with investments. You don't acquire a home with the sole intention to generate a net positive cashflow, or future gain on the capital.
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Of course it's an investment.
Doesn't matter that it's not solely an investment.
 
ClubMan said:
Of course it's an investment.
Doesn't matter that it's not solely an investment.
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Is no more an investment then when you get dragged into a jewellery shop to buy your partner a very expensive peice if jewellery ;)
 
MrEarl said:
It's not an investment - you need to factor in the cost of providing accommodation, which is a basic life-long need, unlike with investments. You don't acquire a home with the sole intention to generate a net positive cashflow, or future gain on the capital.
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I would disagree, it is definitely part of the equation.

Just a random glance at those people who bought houses in good areas of South Dublin many decades ago, waking up in their 60's and 70's finding out that their house is worth north of 1 million euro....and that gain is all tax-free.
Not the end-all and be-all, but certainly should be part of the equation.
 
Horatio said:
For mortgages I typically borrow as much as I can for as long as I can at as low an interest rate as I can on the house I have in mind. My reasoning is that capital that I hold back from contributing to the mortgage can be put to work in investing at a significantly higher rate (even after capital gain tax is account for)
You cited a tax free capital gain of simple 3.3% per annum in your example above.

Very broad strokes: invest your retained capital in the S&P500 index and based on historical simple returns since 1957 you'll average out 10.5% return per annum before tax.

In short we're talking about opportunity cost here.
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The question is how big is that opportunity cost going to be in the coming years? Given the highs the market is at today, and with both QE being tapered off and interest rate rises already occurring, overpaying a mortgage, with an equivalent after-tax return of 3.3%, isn't a bad idea for most people, at least until the results of the above play out.
 
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