Mortgage duration

NotAGolf

NotAGolf

NotAGolf

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My girlfriend and I are looking at mortgages as soon we hope to buy our first house soon.

We're basically looking at the different offers combined with our deposit to see what we can afford per month. From using various mortgage comparison sites it seems that we're be looking at around £750 per month. That is over a 25 year period.

That got me thinking though, what's the drawback with going for a longer length mortgage, i.e. 30-40 years? This will drop our monthly payments by around £200. Obviously you have to pay back more in the long run, but I think it's highly unlikely we'll be on the same mortgage in 10-20 years time.

We're on very poor wages now as we're both striahgt out of uni and into our first ever proper jobs. However we dont intend to stay on this wage for long and we'd be looking to move up the salary scale within the next few years. In which case we'd obviously be earning more, so we can either over-pay on our mortgage or preferably, save up for a little bit and then switch mortgages to a deal more appropriate to our income, with a more appropriate time scale.

Is there anything wrong with doing things this way? It just seems an easier way to get onto the property ladder and make those first couple off years a bit more easy. The only issue I can see currently is that it might be harder to get a mortgage with a long duration. Thoughts?

Thanks
 
sounds like a good plan to me,pay less a month now while your on low wages and when your wages go up you can pay more of.

ive got a fixed rate on my morgage for 5 years and pay £560 a month on a 3 bedroom semi house.

to get on the property ladder now days you do have to make sacrifices and your plan is a good one.

i personally would go for it.
 
If you're happy paying the bank a fortune in extra interest, there's nothing wrong with renting the money for a longer period.

Personally I worked my backside off to pay the mortgage on my flat off ASAP. I work hard for my cash, and resent paying banks any more than I have to. When I move up to a house it will be with a cash deposit and no existing mortgage, but I appreciate not everyone will want to prioritise their spending this way. I'm just good at delayed gratification. :-)

Andrew McP
 
I think the biggest thing is.... how old are you both?

Banks like to have mortgages completed before either person is 65... so for example in my wifes case she was 40 so they asked if we were ok to have the mortgage over 24 years.

So 30-40 year mortgages might not fit with your age.
 
Go for longer thats what we did...but Siuko is correct it all depends on your age.. I opted for a 30 year mortgage but then i am only 24 and missus is 21, the plan being in 5 - 10 years time we will be on more money and drastically reduce the number of years.
 
Cheers guys.

Both 22 so shouldn't be a problem with being too old!

Andrew_McP....I'm obvioulsy not a fan of paying the bank extra money, but like I say, after a few years we'll change to something more appropriate when we're earning a bit more. Hopefully then we'll be getting a decent wage so can pay off the mortgage a lot quicker, it's just a temporary fix for the first 5 years or so really.

This all seems too simple though, why don't all young people do this, there must be something i'm forgetting....Or is it going to be a nightmare getting a mortgage for an extended period (how long do they go for btw?).
 
normally 25 years is the going rate.

most people are on there own when they buy so the repayment's are a bit hard to swallow on one income but in your situation it's better because there is 2 of you.
 
If you expect that both your salaries will increase over time, taking out a mortgage over an initial 30 years and then reducing this to ~20 when you can afford to is a good option.
 
schizo220168 said:
normally 25 years is the going rate.
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Sorry I meant how many years can you 'extend' for. I understand 25 years seems to be the 'default' value. On the mortgage comparison websites you can set the duration to 30 and even 40 years and it still comes back with results...Is this doable?
 
mpledge52 said:
after a few years we'll change to something more appropriate when we're earning a bit more.
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The point is that the longer the mortgage term, the longer the initial period where your payments are nothing more than rent. You pay off none of the borrowed sum for quite a while if you take into account the arrangement fees.

I think it is important to realise that while you're young, with no children *this* is the time to be building up your financial nest egg (in the form of paying off a significant chunk of your mortgage). It may be a dull message, but it's worth making. I wish someone had made it to me when I was much younger, then I'd be sitting in a paid off house rather than a paid off flat. :-)

Anyway, I'm not trying to lecture you (if I was I'd be talking about the next phase of the recession ;-). I just like to make sure people head into the future with their eyes open to the options and their conmsequences.

Good luck whatever you do.

Andrew McP
 
I think you should put the loan over as long a period as possible. after a couple of years of low payments, you'll have settled in and know how much money you have left over each month etc. then simply re-mortgage the loan over less years based on how much money you are comfortable spending extra per month. i'm not an expert tho so thats just my opinion
 
I would agree with Andrew on this one. I have recently bought my first house and am getting the keys in 9 days! It's been a long process but soon I hope totally worth it!

Essentially, if the mortgage lender see you as a viable customer then they are more than likely to flex to 30/35 and maybe even 40 years depending on who they are. The key is not to ascertain how long they are stuck with you for, but how long you want to be stuck with them/mortgage payments.

You know you will pay back more money on interest overall the longer you fix the terms of the mortgage. Therefore, it's in their interest to have it as long as possible. So essentially once they perform all the checks and everything is in order financially, they will probably be happy to lend to you for longer.

Making life easier in the initial few years might seem worth it by paying less, but if you sit down and work it out you will be paying back to them an awful lot more in the long run.

How much deposit have you got saved so far? Bare in mind you need at LEAST 10% or you can whistle for any company to lend you the money. I would recommend trying to get 15/20%. This is all well and good depending on what property prices are like for you and what you want to buy.
 
kevmeister said:
I think you should put the loan over as long a period as possible. after a couple of years of low payments, you'll have settled in and know how much money you have left over each month etc. then simply re-mortgage the loan over less years based on how much money you are comfortable spending extra per month. i'm not an expert tho so thats just my opinion
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An alternative to that approach is to make sure your mortgage allows overpayments of some description - any money you save you can use to make an overpayment and reduce the term of the mortgage. It's certainly not a terrible idea to get a longer term mortgage imo, there are disadvantages which it sounds like you're well aware of but there are advantages also. No-one knows the future despite what they might say, sometimes you have to take a calculated risk. I personally lost out big time by not taking a risk and getting onto the property ladder in 2001 when I had the chance.
 
scorza said:
An alternative to that approach is to make sure your mortgage allows overpayments of some description
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yes, this, didn't think of that, but yes if getting a longer mortgage overpayments is a great idea, and will let you basically control the amount you pay each month.
 
Andrew_McP said:
I think it is important to realise that while you're young, with no children *this* is the time to be building up your financial nest egg (in the form of paying off a significant chunk of your mortgage).
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I fully agree and I would like to get itpaid off ASAP, but as kevmeister said, we'd be in a much stronger position of knowing how much we can afford after we've lived there for a few years. This is exactly how we feel. We've been working on estimates for a couple of weeksnow but we're never going to know how much our gas bill is until we've moved in!

Knubje:
We're looking at a house around he 160-170k mark. We currently have a deposit of around 20%, but we're going to save up a few more pennies until we get to the 25% mark where the rates become a bit more reasonable. Only thing I can see wrong with us from the lender's point of view is that our income isn't great.

Scorza:
I've looked at overpaying which will be a good idea in the short run, but I believe a lot of people charge you if you overpay by a large amount (10% rings a bell???). Perhaps we'd be better off in the long run in holding on to this money for a couple of years and then changing the mortgage and paying off that.

Thanks for all your help as well, very helpful :)
 
mpledge52 said:
I've looked at overpaying which will be a good idea in the short run, but I believe a lot of people charge you if you overpay by a large amount (10% rings a bell???). Perhaps we'd be better off in the long run in holding on to this money for a couple of years and then changing the mortgage and paying off that.
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Yes my mortgage only lets me pay off 10% of the outstanding balance every year. So make sure you don't do more than that - have a look for overpayment calculators online, you save a lot of money overpaying.
 
scorza said:
An alternative to that approach is to make sure your mortgage allows overpayments of some description - any money you save you can use to make an overpayment and reduce the term of the mortgage. It's certainly not a terrible idea to get a longer term mortgage imo, there are disadvantages which it sounds like you're well aware of but there are advantages also. No-one knows the future despite what they might say, sometimes you have to take a calculated risk. I personally lost out big time by not taking a risk and getting onto the property ladder in 2001 when I had the chance.
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yes ,this is my veiw ,ours allows overpayments without fee plus you can lower when you need to , we are due to pay it off next xmas ,thats 10 years instead of 25:)
 
Yea being able to overpay without fees would be ideal. Could pay off as much as possible for when times are good but then if for whatever reason one of us lost our job or the car broke down etc we could revert back to the low monthly fee.

Who are you with moon man to get the no overpayment fees? Do they still do that these days as obviously you got your mortgage a while ago?
 
one of the reasons i was determined to get my own place (mortgage) before i was 30 was so that i could take advantage of a 35 yr arrangement. it is an advantage, me borrowing £80k over 20-25 yrs would've been a stretch on my current wage but (hopefully) i wont be on this wage in 5 yrs time and i am now paying over £100 less a month than my friends are on an identical (well, almost - theres isn't end terraced) rented property. now i've budgeted on my current outgoings, the extra will be a bonus or i can rearrange my mortgage arrangement though what i am thinking of doing is sticking to 35 years and paying more into my pension. a mortgage is the best way of leanding money and a pension (fingers crossed) is probably the best investment.
 
mpledge52 said:
Yea being able to overpay without fees would be ideal. Could pay off as much as possible for when times are good but then if for whatever reason one of us lost our job or the car broke down etc we could revert back to the low monthly fee.

Who are you with moon man to get the no overpayment fees? Do they still do that these days as obviously you got your mortgage a while ago?
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im with Brittania and they have been superb (apart from no online servicing with the account) , but as you say being able to lower in bad times is great (been finished at work twice in the last 5 years) because the more you overpay the lower that minimum payment becomes (mines £50 a month ish now :D but we pay £650
 
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