Mortgages talk to me! I'm ignorant so literally know nothing...

Soldato
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Hi guy's. Basically i'm 27 and i'm sick of living at home. I refuse to move out and pay rent because the money is just completely wasted. I have managed to save up £10,000 and only really looking to get a small but nice 2 bedroom flat in Newcastle area for £100,000 budget.

So say I find the right place put down a £10,000 deposit and get a 90% mortgage at roughly 6% interest. I will be paying £586.70 and £450.00 of that will be paying the interest only! The idea of this makes me want to puke.

I was wondering if I was going to do something like this would that 6% interest rate reduce year upon year seeing as I've paid off more of the value of the property and by how much? Also if I was pay off lump sums off the property every now and then as often as I can will that reduce the interest rate also? I don't want to be paying that 6% rate forever.
 
Associate
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I'm afraid the high interest portion is intrinsic in the nature of mortgage financing. You spend the early part of the mortgage paying mainly interest and the latter mainly capital. Not much to be done about that.

Broadly speaking you are unlikely to find a mortgage deal which will ratchet down the interest rate as your LTV improves. However there is nothing to stop you simply remortgaging to a better deal once that improved LTV becomes a reality. There are a lot of mortgages on the market with no early repayment penalties so there is no need to worry about getting stuck with any rate forever.
 
Man of Honour
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Energizer got it right with his first paragraph. The first chunk of mortgage will always be mainly interest.

I'm still in my first two years and will be moving to a different mortgage deal, with a different rate, in March. Not much to be done about the interest rate at the start.

BTW we're on less than 6% and put down less than 10% deposit.
 
Associate
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This is for a £117,000 Mortgages with a £9,000 deposit. 2yr Fixed at 3.99% and then onto a variable. However it gives a nice break down of how much you've actually paid off each year, as others have said you'll always pay off mostly interest at the start and then capital later on.

P.S 6% is a poor rate, look at the Co-Op (who don't deal with brokers, so if you've seen a Mortgage broker they I expect won't have looked at them)

costovertime.jpg
 
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Associate
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Its kinda the nature of the beast as noted above.

Then again if you gave someone a loan of £90,000 and they paid it back in tiny chunks for 25 years you'd want some serious kick back from it.

If you can save up more you will be better off. I saved and saved to get 26% deposit which gave me a really good basis for a low interest rate mortgage.

Stay at home for another year and see what position you are in then is what Id recommend.

Im now looking at a bigger place and am saving and saving until next summer when I hope to take that along with my current property and move up the ladder.
 
Soldato
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Yeah it's pretty painful seeing the last couple of months payment disappear once the interest is applied.

Don't forget though, the €100,000 isn't the final sum, you've solicitors fees to pay, registration fees and in my case there was some form of appraisal fee which involved a separate party coming in, inspecting the place and deciding if it was worth the money being paid (clearly these guys didn't exist before now :p). I'm sure there was more but I can't think of anything else off the top of my head.

For me these fees added an extra 10% to the cost of the property but then it was very low sale price.
 
Soldato
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Buy somewhere with a spare room and get a lodger to help cover your mortgage/give you some play money.
 
Associate
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Better deposit = lower rates
Overpayment = less interest paid & shorter term

Those are the two ways you can lessen the cost of a mortgage. There are funky things nowadays like offset mortgages, but they are only any good if you have some savings.. typically first time buyers won't have any because they just paid the deposit with them!

As someone above said you'll easily be in to four figures to just fund the buying process ( solicitor fees, mortgage arrangement fees etc).
Then you need to buy all the stuff to live - appliances, furniture, homewares (like plates/cutlery).. there is no end of stuff you need to buy.

Then you may need/want to do some decorating..

You also need to keep a slush fund to fix stuff if it goes wrong, imagine the boiler breaks, in winter.. no heat, no hot water.. not fun.

Home ownership is not cheap.
 
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Associate
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Hi guy's. Basically i'm 27 and i'm sick of living at home. I refuse to move out and pay rent because the money is just completely wasted. I have managed to save up £10,000 and only really looking to get a small but nice 2 bedroom flat in Newcastle area for £100,000 budget.

So say I find the right place put down a £10,000 deposit and get a 90% mortgage at roughly 6% interest. I will be paying £586.70 and £450.00 of that will be paying the interest only! The idea of this makes me want to puke.

I was wondering if I was going to do something like this would that 6% interest rate reduce year upon year seeing as I've paid off more of the value of the property and by how much? Also if I was pay off lump sums off the property every now and then as often as I can will that reduce the interest rate also? I don't want to be paying that 6% rate forever.

You might think rent is a complete waste, but the interest part of the mortgage + maintenance + loss off interest on £10k savings + moving fees + house price depreciation are likely to be an even bigger waste of money overall. You pay your money and you make your choice but it is NOT black and white.
 

daz

daz

Soldato
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Don't forget on a flat you'll need to pay a service charge which can be quite a bit if your block as a lift etc.
 
Man of Honour
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You might think rent is a complete waste, but the interest part of the mortgage + maintenance + loss off interest on £10k savings + moving fees + house price depreciation are likely to be an even bigger waste of money overall. You pay your money and you make your choice but it is NOT black and white.

It is fairly black and white. Pay your own mortgage or pay someone else's.
 
Caporegime
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It is fairly black and white. Pay your own mortgage or pay someone else's.

Indeed and after you have paid the mortgage off, the house is yours whereas renting a place, the house or flat is never yours.

Saying that i only have a couple of yrs before my house is mortgage free.
 
Soldato
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You might think rent is a complete waste, but the interest part of the mortgage + maintenance + loss off interest on £10k savings + moving fees + house price depreciation are likely to be an even bigger waste of money overall. You pay your money and you make your choice but it is NOT black and white.

House prices have never depreciated long term. It is very black and white. A mortgage over 25 years with an unencumbered property at the end will work out a hell of a lot cheaper than 25 years of rent, where you end up with nothing.
 
Associate
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You might think rent is a complete waste, but the interest part of the mortgage + maintenance + loss off interest on £10k savings + moving fees + house price depreciation are likely to be an even bigger waste of money overall. You pay your money and you make your choice but it is NOT black and white.

Except the interest on savings is the square root of bugger all at the moment and is likely to stay that way for some time.
Lets do some sums..
10k capital
38 years (lets say the OP retires at 65)
5% interest (you won't get near this at the moment)

Thats about £66k

So, imagine you are 65 and you've rented all your life and you've got your £66k. When are you going to retire and how will you fund your life ?

If you rent somewhere for £600 a month thats about 9 years just paying the rent - need to add everything else on top of that.
Realistically that £65k will last 4/5 years if you really stretched it out.

If you can remove the millstone of housing costs in your retirement it makes everything much easier.

Edit: OP, do some investigation about the different types of mortgage products available, this would be a good start: http://www.moneysavingexpert.com/mortgages/mortgage-guide

I just did a very quick search on one of the compare sites and found a 3 year fixed @ 3.99% (4.74% afterwards) that you would potentially be able to get, works out about £474 a month. Thats a repayment, so you are paying off capital from day one.
 
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