Cost of Mortgage Advice

[jonnylaris]

Hey Jonny - fellow "Belfastian" here!

My wife and I bought our first house 2 years ago - a small, 3 bed detached in North Belfast. I was insistent that we buy detached - I do not want to end up with nightmare neighbours! She was tempted with semis because of course you get more for your money!

The house was £158k and, at the time, I was on £40k and my wife £25k.

We put down a 25% deposit and got a 5 year fix @ 2.08%.

Repayments are £500 per month, plus £70 rates plus £38 for life and buildings & contents insurance (£23 for life cover and £180 per year for buildings and contents), so a total of £600 a month.

At the time, that was 15% of our take-home.

However, we deliberately went with a high deposit and low total to allow for contingencies.

A year or so ago, I quit my job (stress) without a job lined up, which was quite exciting. I was unemployed for about 3 months before finding a new job that is basically zero stress, but only pays £25k.

My wife has quit her job twice (fed up in one and bullied in another) and is currently not working. (We're idealists in that we hate working for money and prefer jobs that are enjoyable / worthwhile / not stressful).

This (small mortgage) allows us the freedom to do things like this. Currently, I can handle all the bills on my modest salary while she looks for meaningful work.

My opinion is that you are at your financial limit with that house, but as you can see, I prioritise freedom over a nice house.

My advice would be consider if you'd be happy with the mortgage if rates were to go to 5% and also how secure / happy your jobs are. Would you be able to pay the mortgage on one salary with rates @ 5%?

Great advice mate thanks for the detailed response! We are both quite fortunate as we both work in jobs we love in the IT industry (web development). It's a great industry to be in as there are no shortage of jobs and the pay is good. Infact we are still at the bottom bracket salary wise, so within the next few years we should be on a considerably higher income all being well.

 

[Jimbo Mahoney]

Great advice mate thanks for the detailed response! We are both quite fortunate as we both work in jobs we love in the IT industry (web development). It's a great industry to be in as there are no shortage of jobs and the pay is good. Infact we are still at the bottom bracket salary wise, so within the next few years we should be on a considerably higher income all being well.

Cool, you should be pretty good then.

I worked with the SW team in my previous place, so yeh, there seems to be no shortage of IT/SW development jobs in Belfast and the salaries are pretty good too!

Enjoy!

 

[jonnylaris]

Re: Insurance - I echo what Hungry and others have said.

Our broker initially wanted to flog us ~£100 a month for life / critical illness cover.

As you can probably tell from my previous post, this didn't sit well with me (especially as their commission is on the forms they give you!).

In the end we went for our own (search engine) decreasing life cover to the value of the mortgage and a small amount of critical illness cover, which is much more reasonable @ £23 per month.

Is there much point adding on income protection too?

 

[Jimbo Mahoney]

Is there much point adding on income protection too?

Only you can answer that question.

My opinion (although it's kind of a fact) is that insurance companies need to make money, so the amount you will pay will exceed the likely benefit. However, as with any insurance, if you need to make a claim (and they pay out), then of course, you'll be glad you took it!

My wife and I have enough savings that we can live without any income for a couple of years, so we don't bother with things like income protection insurance. I'd rather save the money we'd pay for extra insurance into productive assets.

 

[jonnylaris]

Only you can answer that question.

My opinion (although it's kind of a fact) is that insurance companies need to make money, so the amount you will pay will exceed the likely benefit. However, as with any insurance, if you need to make a claim (and they pay out), then of course, you'll be glad you took it!

My wife and I have enough savings that we can live without any income for a couple of years, so we don't bother with things like income protection insurance. I'd rather save the money we'd pay for extra insurance into productive assets.

Yep, we could easily stick 3-4 months wages away into an ISA or something as an emergency fund instead.

 

[MikeTheNative]

It depends on what job you two do (chances of redundancy and time it will take to get another etc.) and if you can afford the mortgage while one is out of work short term
Me and my gf decided against it as she is a teacher, she's unlikely to be out of work for too long. She earns more than me so we can cover me being out of job for a short time.

 

[kai]

Do people not worry about that level of commitment for such a long period of time? I work in a fairly niche industry and the though of being stuck with £1K+ a month mortgage without a job scares the life out of me. Based on both our yearly income we can borrow around 750K, that's just scary!

 

[b0rn2sk8]

It’s all relative, I’d rather have a £1k a month mortgage if the worst happened than what would be £1300 in rent. Putting aside the whole paying someone else mortgage issue, at least with a mortgage co you can typically negotiate and/or take a mortgage holiday and get insurance, a landlord will sling you out at the first sign you can’t pay.

 

[fobose]

Do people not worry about that level of commitment for such a long period of time? I work in a fairly niche industry and the though of being stuck with £1K+ a month mortgage without a job scares the life out of me. Based on both our yearly income we can borrow around 750K, that's just scary!

When I first got my 280k mortgage I was quite worried to start with but me and the wife both took out income protection which covers the mortgage cost each month if we lose our job or are too sick to work outside our employers sick pay periods. My wife earns more than me and we could just scrap by with my income for all our outgoings but all the 'extras' would have to stop. We've also managed to put aside 18k in savings over the last two and a half years too which is a buffer for if she gets pregnant or any large unexpected payouts (new car etc).

 

[MikeTheNative]

Do people not worry about that level of commitment for such a long period of time? I work in a fairly niche industry and the though of being stuck with £1K+ a month mortgage without a job scares the life out of me. Based on both our yearly income we can borrow around 750K, that's just scary!

I was a bit shocked how much we could get a mortgage for as well. We ended up with a 250k house with the view of spending 30k on it (all priced by using equity from a sale). But we could have lent for a 370k house! Technically we could have afforded it but we would just be sat in an empty house not being able to afford to do anything.

 

[jonnylaris]

I was a bit shocked how much we could get a mortgage for as well. We ended up with a 250k house with the view of spending 30k on it (all priced by using equity from a sale). But we could have lent for a 370k house! Technically we could have afforded it but we would just be sat in an empty house not being able to afford to do anything.

Yea exactly, we could borrow some crazy amount too.

Basically our mortgage payment would be £1k which will leave us with over £3k a month.

Even if one of us loses our job and we run out of income protection, 1 of us can still pay the mortage and bills and have enough for food and essential items.

 

[happy_2008]

Speaking of Mortgages, how much do you guys own?
Borrowed - £135k
Owe - £100k
Period - 16 Years and 9 months left

 

[fobose]

Borrowed - £280k
Owe - £255k approx. I did not setup an online acc to check but from the last two annual statements I am paying off just over 10k a year off the capital.
Period - 20 years 8 months left.

 

[happy_2008]

Borrowed - £280k
Owe - £255k approx. I did not setup an online acc to check but from the last two annual statements I am paying off just over 10k a year off the capital.
Period - 20 years 8 months left.

Thats quite a big mortgage! As my mortgage gets smaller paying more seems scary again I need to remortgage to upsize my property so looking to double my mortgage owed.

 

[fobose]

Yeah it is. My first was 87k on my own in 2010. I managed to pay off almost all of it (77k) by the time I sold in 2017. It was quite scary when we were looking at properties for 500k when my first cost me 155k !

 

[happy_2008]

Yeah it is. My first was 87k on my own in 2010. I managed to pay off almost all of it (77k) by the time I sold in 2017. It was quite scary when we were looking at properties for 500k when my first cost me 155k !

How much is your repayment monthly? When i do remortgage i cant decide if i wanna do 20 or 25 years.

 

[fobose]

How much is your repayment monthly? When i do remortgage i cant decide if i wanna do 20 or 25 years.

It is £1225 (23 year term when we set it up). We were undecided about 20, 23 or 25 years but went with 23 with the plan to over pay. We have only just increased our payment to £1500 since the start of this month (2 and a bit years later, whoops).

If you can afford to pay 20 years comfortably and still have money to do the new place up if needed, I would personally go for that. If it will make life difficult then I would go for the 25 year with the plan to overpay where possible - it will also give you a bit of a buffer if job security not good. I find the only downside with going for the longer term is most people (including me this time) get used to the lower monthly payment and that then becomes the new 'norm', making it difficult to overpay.

I've been pretty good at saving over the last 19 years of working but still found it hard to get back in to the mindset that I need to overpay if I want to reduce my term.

I am not in my forever house either (It's only my second home!), its a semi detached on a new ish estate so its quite noisy when the windows are open (had AC fitted in April). I would love to be some where detached and quiet but for my area that was another £150k on top of my 500k. Hence why I am keen to keep paying as much as I can in case I have to step up again.

P.S my mortgage is 1.69% for 5 year fixed. Out of the £14700 we are paying each year (with the £1225 payment), about £4.5k of that is interest. It will go down each year obviously but the more I draw out paying it back, the more I am going to keep paying the bank a lot of interest so I am keep to whittle that down as best I can!

 

[Psycho Sonny]

Speaking of Mortgages, how much do you guys own?
Borrowed - £135k
Owe - £100k
Period - 16 Years and 9 months left

pointless question. every answer will be different and unique to everyone's personal circumstances with only the wealthy on here willing to share or should i say brag?

a more suitable question would be how much is your mortgage payment as a percentage to your monthly take home pay. albeit that also has issues as the more you earn the more disposable you have so you can afford to pay more towards a mortgage and still have a ton of money left over.

for example a footballer on £100K a week could afford to stick 40% towards a mortgage and still have £5K+ a week spending money.

however someone earning £20K a year would struggle to put more than say 20% towards a mortgage.

also the amount borrowed tells you nothing. you could borrow £135K against a million pound house or a £150K house.

 

[Psycho Sonny]

Do people not worry about that level of commitment for such a long period of time? I work in a fairly niche industry and the though of being stuck with £1K+ a month mortgage without a job scares the life out of me. Based on both our yearly income we can borrow around 750K, that's just scary!

that is what insurance is for

 

[fobose]

for example a footballer on £100K a week could afford to stick 40% towards a mortgage and still have £5K+ a week spending money.

however someone earning £20K a year would struggle to put more than say 20% towards a mortgage

I don't think that is true. I was earning 25k a year (about £19k after tax?) and living on my own. I was paying £640 a month for my mortgage which was around 40% of my income. People prioritise things differently, I prioritised paying back my debt. Others would rather have a nice car on finance etc.

P.S I think you've made a typo in your footballer example. My maths is not that good but 40% of 100k is 40k. So the footballer would have 60k a week spending money, cheeky bugger