Choosing a mortgage

[Hoolahoophop]

DH and I are looking to buy our forever home.

Ideally we would like to be mortgage free in 10 years.

Calculators say myself and my husband can borrow up to £400k but I would rather we keep it down to more like £200k so that we are not stretched and can continue to enjoy life. The amount we can borrow is based on our basic salary, Dh gets a large bonus. I get a large dividend on top of basic (probably exceeding £50k pa pre tax). We may want to buy somewhere needing some work as land (2 acres) is our priority but happy to wait to do home improvements. Deposit including cash and current house value is around £900k. We live in an expensive area.

We have several kids but none in private education. No outstanding debts but we do like a holiday and going to the theatre so enjoy a good standard of living that requires a high disposable income.

Would you take out a 10 year mortgage and be committed to higher payments or take out a 20 year mortgage and regularly overpay? Are there any benefits downsides to either option.

Thanks

If you take the shorter term then you’re obliged to make those payments in any event. That may look achievable now, but you never know what’s around the corner - job losses, serious illness, etc. might then those payments quite difficult. By taking the longer term and overpaying, you could still pay off the mortgage in 10 years, but it gives you the flexibility to reduce your monthly outgoings (by not overpaying any longer) if the worst should happen.

Another thought: it sounds like there is a fair bit of money going into and out of your bank account every month. An offset mortgage will save you a lot in that case. It is as if all the money sitting in your current account had been applied to your mortgage and you aren't paying interest on that amount. Put another way, it is as if your current account were paying you interest at the same rate as your mortgage.

Offsetting saved us a huge amount of money. Also, we had maximum flexibility because rather than paying off more of the mortgage and keeping just a tiny amount in the bank (which might have proved inadequate if my self-employed partner's work had dried up) we always kept £10k in the bank which was accessible but also effectively counted against the mortgage.

Oh I didn't think about an offset account. Will investigate

Also consider 'self offsetting' as offset mortgages aren't very common and the rates are usually worse than a standard mortgage. Then you just save separately and can often get a better interest rate as you have access to the whole market and can use regular savers for money you're saving out of income, then fixed rate products as you build up lump sums. These rates will often beat your mortgage rate.

You can still also earn interest from your current account and instant access savings - we are with Santander that pays around 4% on the current account and just over 5% on a linked savings account that money can be transferred back and forth between instantly.

I'd recommend talking through the options with a broker OP