Mortgage or not

K

kane3000

Registered User
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47
Hi,

This is perhaps a bit of a daft question I guess, but want to get a view on it.
I have just bought a house, for cash, to make the transaction very quickly as it was (in my view) a bargain. However I naturally used quite a lot of my savings to do this. I am now looking at getting a (re)mortage of about 20% LTV on the property to free up some cash again.
I could in theory afford to live mortgage free but psychologically need some cash in the bank (rainy day, lose job etc.).
Has anyone any thoughts on this? Thanks a million.

Kane
 
I would have thought that if you have the ability to borrow against the house to have a "rainy day" fund, then that "ability" should itself be your rainy day backup.

Unlike a mortgage, it's free.
 
I don't know for sure but I imagine that a bank would be willing to consider this - you sound like a good prospect from the lenders perspective. The only thing is that many banks have a minimum mortgage amt. that they will lend - I have a feeling that it might be in the region of 40k, but I am not sure.
However, from a financial perspective this doesn't make much sense to me. I can understand the psychology of having a cushion, but it makes no sense. Let's say they lend you 40k over 20 years - you'd probably end up paying back 55k. Your monthly interest would be in the region of 4%-5% and monthly payment about €250. Why not save this amt. (and maybe something more) in a high interest regular savings account. You'd quickly build up a nest egg and have a 'cushion' that was yours. With the plan you are proposing above, the cushion would belong to someone else and would be a liability and source of stress in the event of a job loss or other rainy day scenario.
 
Great responses Macstuff and callybags - it doesnt make a lot of financial sense and I need to get over myself.

Appreciate it.
Thanks
 
No problem and well done on having the cash to purchase a house - I wish I was in that boat !
 
Have you consider the credit union, where they lend money based on your shares/savings. we borowed 40k seven years ago, over 5 yrs paid back 53K, interest rates have dropped now so you'd better loan cheaper.

Id simply save the money, you dont feel it adding up.
 
I think its an excellent idea to have a rainyday fund put by. I admire your thinking.

When the rainyday comes, ie losing a job, no bank will be willing to lend to you then.

Organise it now and stash it way. A few euros extra on interest will be worth it for the peace of mind.
 
Agree with Mac,it makes no sense to borrow at say 5.35% and lodge the money in an account and get 1-1.75% interest.

Bank the profits from the rental property and build up savings this way,you also need to get up to speed on all responsibilities as a landlord and know the regs and legislation like the back of your hand.

Also what you can write off against rental income in order to legitimately reduce your tax bill.

Losing the security of a decent wedge of savings takes a bit of getting used to but you bought at a good time and if held for 7? years you avoid CGT,you have invested your savings in an asset that will pay out a significantly better yield than if left in a savings a/c earning next to nothing.Presuming you are getting a net yield north of 9%?

Landlording takes a bit more effort but if you don't mind hard work then it shouldn't bother you too much.
 
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