Is stepping down a rung on the property ladder crazy?

M

MissRibena

Guest
Hi all

I "own" a modern 1600 sq ft semi-d very close to the centre of a town. There is approx €55K left on my mortgage. I've been breaking my neck to get rid of it since I started it 5 years ago. For the last two years I have been keeping an eye out for a house out from town with a decent garden, hopefully with a bit of work to do (decoration rather than renovation). The house I've found is not where I want it exactly but to compensate for this, it's much cheaper than the mythical "ideal" and would mean that I would probably have little or no mortgage.

I haven't enjoyed having the debt and would be glad to feel free of it but I haven't really thought about what I'd do with the extra money every month and I don't know anybody who has done this. Everybody else seems to want to get bigger, more expensive houses and I'm wondering if I'm missing something. Would having no mortgage now be a false economy since I won't have a big house for a nest egg in a few years?

Thanks a mil
Rebecca
 
plans

What are your plans for the near and long term future? If you like the house and it's big enough for you then I would say go for it! From my own point of view, we bought a house knowing we would be starting a family, so the house is big enough to manage that for the foreseeable future, if this were not the case the size of the house would not have been an issue.
 
Re: plans

Hi terrysgirl

Thanks for the reply. I am single and not planning a family at the moment but even if I was, the new house is stil three bed so it wouldn't be an immediate problem. The site is an acre so there would be potential for an extension if it came to it.

The only thing I don't like about this house is that it's on a busy-ish road but it's reflected in the price. There's no way I'd be mortgage-free in the location I favour (assuming that a house I would like ever came up for sale).

I guess I'm kinda worried that my present mortgage money would get swallowed up in a nicer lifestyle for myself (home improvements, holidays, books, maybe a bit extra to PRSA etc) and this would be less wise than paying for a mortgage on a "better" house.

Rebecca
 
Re: plans

Hi Rebecca,

At the end of the day it doesn't matter what anyone else says or does; if this suits you then there is no reason for you not to do it. You could always divert the money you would be paying into the mortgage into savings or your pension or you could save up and buy an investment property or a holiday home.

If it makes you happy go for it :)

Sarah

www.rea.ie
 
Re: plans

If it makes you happy go for it

Totally agree - if you will be happier and less burdened with debt then it looks like a no brainer to me.
 
Re: plans

Thanks guys.

I know it seems like a silly question but I'm trying to make sure that there isn't some aspect that I haven't fully considered. Usually something that sounds too good to be true turns out to be just that and all that kinda thing.

Thanks again
Rebecca
 
...

If you're worried about blowing all the extra cash you will have you could always consider investing it in the stock market.

Something like a unit linked fund (or just picking 10 big shares and investing equal amounts in each) might be ideal for you as it would be fairly hassle free and you are in the position to invest over more than five years which is the advised mimimum term for such investments. This way you would be diversifying your assets so that you have a decent amount invested in property and equity - if one goes belly up you should have the other to fall back on.
 
any advice

Hi Miss Ribena,

Do you have any advice for anyone trying to follow in your footsteps in trying to zap their mortgage? Assuming once that person has made the usual cost saving efforts (stop spending money on the frivolous, drink, books, clothes etc.).

Did you find that actively reducing the term of hte mortgage helped? Did you just put extra in every month against the capital or make more than one paymet a month?

thanks in advance
cas
 
any advice

Rebecca - I made a final settlement on my Victorian terrace house a few days ago, and cleared off two other large loans, courtesy of my mother's legacy (Thanks Ma!)

I cannot believe the feeling of relief gathering over the past few days. I've worked and worried and driven myself practically into the ground to keep everything going for the past 20 years and however difficult and stressful my job got I love the work, but working in a dinosaur semi-state organisation like the NHS and trying to protect your patients is often impossible.

Now whatever happens job-wise - redundancy, serious illness - I have a secure roof over my head and that's the primary basic need from which other things follow.

Now if new opportunities come along I have the flexibility of quitting the job, renting out the house or just boarding it up, and going off to wherever the action lies.

Like yourself, my first thought was "What am I going to do with ALL THAT MONEY every month, if it's not siphoned off immediately into the mortgage and the large loans!

Well for the first time in my life I can now set up an ISA, get some government Savings Bonds (which are tax-shelters) up to maximum £11,000..............and in a few weeks I'll look around the ethical investment funds Brendan Burgess wrote about in an article he quoted in response to a recent question here on AAM (? which forum?)

There will be other little treats. No more standing in the freezing sleet at bus-stops........now the budget can cover the odd taxi. That 30' of derelict fencing along one side of my back garden which I couldn't even contemplate having replaced can now be done. After 15 years of having no proper holiday (it's been work work work to survive, retrain, multiskill etc. etc.) I can fulfil a lifetime's ambition and organise a month in China learning about their "barefoot doctors" - the inspiration of my youth.

It is very, very nice. Have no fear you are losing anything by not being greedy and profit-driven!

My original plan was to keep the money as property in Dublin (with a second mortgage!!!) and rent and manage it long-distance. Am I glad now as I watch what's happening in the property markets that I didn't go down that route and double my work and worries!
 
Mortgage Free

Hi Cass and Marie

Thanks a million for the replies. I'm coming to terms more and more with the idea and needless to say it's growing on me! I'm going for the second viewing tomorrow with a couple of very level-headed advisors and all going well plan to make an offer.

How did I do it? Lots of luck and no luxuries really. I bought a better house in a less desirable area because at the time I thought I would have to rent out rooms, so I bought a house that was VERY near to public transport, shops, pubs etc. Everyone said the area was rubbish (local authority housing), so the house was cheap to start off with and my mortgage wasn't quite as crippling as it might have been.

From the very start I paid more than I could afford into the mortgage. It was 20 years but I've paid about 25% more in every month and there should be 15y3m left, but there's only 9y11m. I lived very frugally, no clothes, no holidays, no nights out, gave up smoking, no books, home made lunches at work, no cds, shopping in Aldi and Lidl, no nothing basically. Anything I had to do was done the cheapest way possible either by calling in favours of learning how to do things myself (servicing the car, wallpapering, that kinda thing). I used to rent out a room, that went to the mortgage. Every salary increase or tax reduction was added to the mortgage.

So my house has gained in 5 years - more than doubled in value if the estate agent is to be believed. And interest rates fell (and each reduction, I channelled into the mortgage). That's just pure luck.

The house I'm hoping to buy is being bought with the equity gain in the mortgage, and I suppose it's a "step back" but to me it's not. It would be considered less desireable just like my last one was, so maybe I'll be lucky again and my taste will continue to run contrary to the rest of the market. I hope nothing goes wrong now, cos I'm getting all excited! Fingers crossed.

Rebecca
 
Mortgage Free

Rebecca - good wishes for tomorrow and look forward to hearing how things go and what you decide. :)
 
Re: Mortgage Free

I too bought a house in a town in the country about 5 years ago and I too made every effort to pay off the mortgage as quick as I could as I hated the idea of having to pay it back for what seemed the rest of my life.

I lived a bare existence, went very rarely on holidays and spent little when I was out. I did well out of some shares, all proceeds went to pay off the mortgage. Then I paid all my redundancy into it also (luckily I had another job waiting). In the space of 3 years I had paid it off.

And would I do it again? No. I've learned my lesson. You only live once and its not worth depriving yourself of a life for the sake of material gain. In hindsight I should have eased up on the repayments, had a bit more of a social life and enjoyed myself whilst still paying off large chunks of the mortgage.

I've since bought a new house, with a biggish mortgage. It will be paid off when it will be paid off. I'm going on holidays this year and Im having the time of my life.

Moral is not to get too carried away. Don't be too obsessd with paying off y our mortgage - have a life!
 
Mortgage Free

NedNew - Miss Ribena's original post states that she currently has a large mortgage on her present house. She would get rid of the mortgage by "trading down" (selling her current home and purchasing one further out of town) and would then have little or no mortgage.

Her question was - as I understand it - on the financial wisdom of going against the tide, bucking the trend, disregarding the manic obsessiveness about bigger and more "property" and "investment".

Did anyone see the "Place in the Sun" episode on Channel 4 last night where two partners (middle-aged Trinidadians living in England since childhood) had come to the end of a decade of successful property developing in this country and went back to St. Kitts (one of the chain of islands) intending to buy a house to rent out and end up purchasing a job-lot of 21 development plots!!
 
Re: Mortgage Free

Yep Marie, that's what I was wondering basically. Would the trade down and the lesser "asset" be a silly move in the long run. But I'm not so worried now.

I know what Ned is saying (but 3 years of hardship seems very little to me to get your house baid off!) but each to their own. I love the idea that if all goes well, I could save for a year and take a year out and travel or study or whatever and still have a house and car fully paid off to come back to. It's a huge freedom. No pressure to stay on the career ladder or anything.

Rebecca
 
Mortgage Free

Helo Rebecca

I'm just getting used to it. Sure I get a jag of doubt every time I hear "property values increased a further 8% in the past year" etc., etc. and have to keep reminding myself that that means precisely that for every 1K of a mortgage you may be lucky enough should someone who really really wants that particular house be prepared to offer you an extral 80 in every grand - and that even that isn't strictly true as a profit picture because you've already paid all the upfront purchasing expenses and you've been paying interest on your mortgage for X number of years.

For the past few days I've felt less like a whipped whelp going in to work; now work is something I'm doing that I'm good at and enjoy. All the stress around relations with difficult colleagues, or the shenanigans of management directives, now seem more in proportion and can be handled in their own terms.

That isn't to say I wasn't sorely tempted by the profit-motive!

As NedNew says, there's more to life!

There's a wonderful provincial French proverb protecting against overweening greed: "Always remember you only have one "a***hole".

Look forward to hearing how your negotiations go Rebecca!
 
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