First mortgage, am I being thick?

[MajorMantra]

My lady and I are looking at buying a house for the first time (currently renting) and so naturally we're looking around at mortgage options. Some lenders are now offering mortgage terms up to 40 years, and as I'm 26 and my gf is 24, going that long is actually a possibility.

Now obviously you pay an eye-watering amount of interest if you actually take 40 years to pay off your mortgage, but is there any good reason why we shouldn't sign up to a 40-year with a lender that doesn't penalise for early repayments, on the assumption that we will pay it off in far less time?

As I see it, that way we'd be committed to a low monthly payment (which is good from a risk point of view, for example in the event that one of us lost their job), but we'd be able to overpay to clear the debt much sooner than the end of the loan term.

Thoughts?

Cheers!

Edited by MajorMantra on Sunday 31st January 16:01

[kiethton]

That's what I choose to do, remember your first fix expires and you can just remortgage with a lower amount then if your precluded from payments

[Magic919]

Longer period, with a product where you can overpay or snatch some back, gives you the most flexibility.

[Condi]

Every young person is doing the same I think? Mine was 35 years, will be re-mortgaging down to a lower period when it comes up in a few months.

[PositronicRay]

Do it and overpay when you can. Unlikely you'll be in the same place for 40yrs anyway.

Interest rates are rock bottom now so don't commit yourself to the maximum monthly's. Ideally you want to be overpaying while rates are low, giving you a cushion when they go up.

(although I do understand that might be difficult at this stage in the game)

[audi321]

Why not look at an Offset mortgage? Any surplus cash just throw in the offset account

[emicen]

I took out a 35 year mortgage 8 years ago on my first place for the same reasoning. Lower monthly allowed flexibility (was contracting at the time).

Only thing i would caution would be, don't underestimate the discipline needed to overpay. That was my plan, but then along came 5 seasons of car racing and other fun stuff. I've made nothing of the historically low interest period and it's only now I've moved to a house with my girlfriend and I'm looking at renting it out that I'll actually start overpaying with the rental income.

[MajorMantra]

Good grief, is this a PH consensus? Unheard of!

audi321 said:

Why not look at an Offset mortgage? Any surplus cash just throw in the offset account

Hadn't even considered it. I'll investigate, but I suspect the choice of deals isn't as good with offset mortgages.

[Salgar]

Yes, I've done the same thing. Bare in mind that there usually 'is' a penalty of paying more than 10% extra for the duration of the fixed period. But I've been saving the extra and will put another chunk down when it comes to remortgaging.

[emicen]

MajorMantra said:

Good grief, is this a PH consensus? Unheard of!

audi321 said:

Why not look at an Offset mortgage? Any surplus cash just throw in the offset account

Hadn't even considered it. I'll investigate, but I suspect the choice of deals isn't as good with offset mortgages.

Also factor in arrangement fees and/or exit fees as they will offset any overpayments made.

Mine had no entry or exit fees, overpayments were limited to 10% of the outstanding mortgage balance per year.

[CRB14]

My lender made me sign up to a 40 year mortgage 8 years ago due to affordability. I was young then and went along with it but it wasn't until a few years ago that I understood the real value of overpaying. I guess you live and learn.

[DonkeyApple]

emicen said:

I took out a 35 year mortgage 8 years ago on my first place for the same reasoning. Lower monthly allowed flexibility (was contracting at the time).

Only thing i would caution would be, don't underestimate the discipline needed to overpay. That was my plan, but then along came 5 seasons of car racing and other fun stuff. I've made nothing of the historically low interest period and it's only now I've moved to a house with my girlfriend and I'm looking at renting it out that I'll actually start overpaying with the rental income.

Funnily enough, this was why I took out a 10 year on my first flat. I took the view that it would mean I had absolutely no choice but to funnel every spare penny I earned into it and so had absolutely no risk of not finding overpayments easy to forget about or using any spare cash to stay in pubs longer.

[MajorMantra]

Thanks, this is all helping. The best offer I'm looking at right now is a First Direct 5 year fix that appears to offer unlimited overpayment, although I'll be going through the terms in great detail before committing to anything.

Playing with an overpayment calculator is certainly eye opening: an extra £400 a month on this deal for example almost halves the length of the loan. It puts into perspective all the little things I waste money on, but then I don't want to live the life of a pauper until my house is paid for...

[DonkeyApple]

MajorMantra said:

Thanks, this is all helping. The best offer I'm looking at right now is a First Direct 5 year fix that appears to offer unlimited overpayment, although I'll be going through the terms in great detail before committing to anything.

Playing with an overpayment calculator is certainly eye opening: an extra £400 a month on this deal for example almost halves the length of the loan. It puts into perspective all the little things I waste money on, but then I don't want to live the life of a pauper until my house is paid for...

I find that whenever I want to buy something that if I consider that the item in buying is only really worth a few pence and that I'm really just paying someone else's shop rent and the rest is tax that I suddenly don't really want the item any more.

I'm not a skinflint but the absolute best thing I've ever done in my life was to clear my first mortgage in my 20s and the second one by my mid 30s. Obviously while rates were higher back then the loan sizes were much smaller but to have been debt free for nearly a decade is unimaginably wonderful that I'd always recommend trading a thousand pointless purchases of things that you have absolutely no need of and will probably just be stting out a few hours later for monthly overpayments to be debt free while your peers are still slaving away but with vague memories of a thousand extra beers and burgers or a slightly higher spec bland commuter car. Obviously, the over spenders will tell you that they might die tomorrow but statistics show that you and they won't be dying anytime soon and that when you're 60 you'll be living the life of Riley while they'll be facing 15 more years of toilet cleaning to make ends meet after being laid off at 50 for being too old and slow.

[MajorMantra]

DonkeyApple said:

I find that whenever I want to buy something that if I consider that the item in buying is only really worth a few pence and that I'm really just paying someone else's shop rent and the rest is tax that I suddenly don't really want the item any more.

I'm not a skinflint but the absolute best thing I've ever done in my life was to clear my first mortgage in my 20s and the second one by my mid 30s. Obviously while rates were higher back then the loan sizes were much smaller but to have been debt free for nearly a decade is unimaginably wonderful that I'd always recommend trading a thousand pointless purchases of things that you have absolutely no need of and will probably just be stting out a few hours later for monthly overpayments to be debt free while your peers are still slaving away but with vague memories of a thousand extra beers and burgers or a slightly higher spec bland commuter car. Obviously, the over spenders will tell you that they might die tomorrow but statistics show that you and they won't be dying anytime soon and that when you're 60 you'll be living the life of Riley while they'll be facing 15 more years of toilet cleaning to make ends meet after being laid off at 50 for being too old and slow.

All true, but you have to draw the line somewhere. I'm careful with money: I have savings and no debt of any sort, but I don't feel guilty about treating myself to small luxuries like spending a fiver on a hot meal for lunch once or twice a week.

On the other hand, I definitely didn't need to buy an MX-5, but I did that anyway...

[DonkeyApple]

MajorMantra said:

All true, but you have to draw the line somewhere. I'm careful with money: I have savings and no debt of any sort, but I don't feel guilty about treating myself to small luxuries like spending a fiver on a hot meal for lunch once or twice a week.

On the other hand, I definitely didn't need to buy an MX-5, but I did that anyway...

I agree completely. It's about the balance.

I drive Peugeot 405 diesels for about 6 years as part of my money saving in my 20s. Looking back, I may have crossed the line!

But also, 15/20 years ago there really wasn't anything to spend money on anyway. Mobiles weren't needed, neither was broadband/adsl, or Sky, you'd never lease a car, beer was cheap and cocktails were for girls, you didn't need hair or grooming products etc. It was a hell of a lot easier to not spend money as none of your peers were.

[Condi]

DonkeyApple said:

I'm not a skinflint but the absolute best thing I've ever done in my life was to clear my first mortgage in my 20s and the second one by my mid 30s.

Haha, sorry, but this may have worked back when Jesus was a boy, but unless you buy somewhere very cheap, or are on an exceptional wage this is fantasy for most young people.

Consider the average age for buying a house is very late 20's to early 30's, with a scraped together deposit, and its just nonsense. Say average house costs £120k, probably with an 80k deposit, on a 25k wage... and suddenly just to cover your payments maybe 30% of after tax income already goes towards the roof, before you've though about bills, running a car, eating etc....



Anyway, life is for living. You'll never be on your deathbed and wish you had saved more, but you might well be there regretting experiences you missed out because you were desperately trying to pay down a mortgage.

[DonkeyApple]

Condi said:

DonkeyApple said:

I'm not a skinflint but the absolute best thing I've ever done in my life was to clear my first mortgage in my 20s and the second one by my mid 30s.

Haha, sorry, but this may have worked back when Jesus was a boy, but unless you buy somewhere very cheap, or are on an exceptional wage this is fantasy for most young people.

Consider the average age for buying a house is very late 20's to early 30's, with a scraped together deposit, and its just nonsense. Say average house costs £120k, probably with an 80k deposit, on a 25k wage... and suddenly just to cover your payments maybe 30% of after tax income already goes towards the roof, before you've though about bills, running a car, eating etc....



Anyway, life is for living. You'll never be on your deathbed and wish you had saved more, but you might well be there regretting experiences you missed out because you were desperately trying to pay down a mortgage.

I think you'll find we covered this all yesterday.

[HJMS123]

Magic919 said:

Longer period, with a product where you can overpay or snatch some back, gives you the most flexibility.

I can only echo this ... it's what Sarnie also recommended for someone young (I'm 23yo)

[fido]

DonkeyApple said:

But also, 15/20 years ago there really wasn't anything to spend money on anyway. Mobiles weren't needed, neither was broadband/adsl, or Sky, you'd never lease a car, beer was cheap and cocktails were for girls, you didn't need hair or grooming products etc. It was a hell of a lot easier to not spend money as none of your peers were.

Hmm .. I find the opposite - that it's easier to save nowadays. Cars are less of a status symbol nowadays. Comparison websites that encourage bean-counting (just did my Utilities with no hassle). EBay to mitigate my shopaholic addictions. But property - yeah it will eat up all of those savings anyway!