Should you take out as small a mortgage as possible?

J

jwof2006

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Hello,

I was recently given a gift, and figure the mortgage I will need will be a lot smaller. Does it make sense to take out a smaller mortgage if you can? Or should you just pay it off quickly if you have a lump sum like that to spend?

If your mortgage is approved in principle can you reduce the amount you wish to borrow, or do you need to start the application process again?

Thanks
 
jwof2006 said:
Hello,

I was recently given a gift, and figure the mortgage I will need will be a lot smaller. Does it make sense to take out a smaller mortgage if you can? Or should you just pay it off quickly if you have a lump sum like that to spend?
Click to expand...
It's impossible to answer this question without knowing more about your overall financial and personal circumstances.
Like a Money Makeover post.
 
I would say yes, because a smaller mortgage means lower repayments. But on the other hand, if you can get a property that needs investment, you are better off holding back cash for refurbishment or repairs, and take out a slightly bigger mortgage rather than cause yourself financial strain.
Depends entirely on your own circumstances and what kind of risks you want to take, and what kinds of homes you are looking at.
 
Thanks guys. Sorry yea I appreciate it is a bit vague. Yea I guess I am just trying to figure out if it will make much difference taking out a mortgage for 220,000 vs a mortgage for 170,000. Should I just take out the bigger mortgage, and keep the money I was going to use for the deposit in investments? Or should should I take out as small a mortgage as possible, and use all the money I have for the deposit? I won't need much money for refurbishments etc. And I don't have any dependents or other financial commitments. If I just take out the bigger mortgage is it possible to pay it off quicker with a number of lump sum payments? Do you get punished for this? Thanks
 
jwof2006 said:
If I just take out the bigger mortgage is it possible to pay it off quicker with a number of lump sum payments? Do you get punished for this?
Click to expand...
If it's a variable rate mortgage, no.
If it's a fixed rate mortgage, maybe, but probably unlikely at the moment.
 
jwof2006 said:
Thanks guys. Sorry yea I appreciate it is a bit vague. Yea I guess I am just trying to figure out if it will make much difference taking out a mortgage for 220,000 vs a mortgage for 170,000. Should I just take out the bigger mortgage, and keep the money I was going to use for the deposit in investments? Or should should I take out as small a mortgage as possible, and use all the money I have for the deposit? I won't need much money for refurbishments etc. And I don't have any dependents or other financial commitments. If I just take out the bigger mortgage is it possible to pay it off quicker with a number of lump sum payments? Do you get punished for this? Thanks
Click to expand...
Also depends on the house value etc
If you pay 20% deposit the overall interest rate is usually smaller and also the monthly repayments are smaller.
Any alternative investment would need to break even the interest rate you pay after tax. E.g. if you pay 4% interest you should have 4% percentage after tax from your investments (and would mean around 7% return of investment before tax) - but that is connected with risks while paying off your mortgage is tax free and risk free.
 
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