£450K inheritance for a deposit. How much should we comfortably borrow

[Secretservice009]

Hi name changed for this one. DP and I are long term renters but he has recently been left circa £500k by his late mum. His plan is to put £450k in a house for us (in both our names we are getting married early next year) and then we can borrow on top to get a big enough house for our blended family. Together we earn £150k after tax, we both have our own businesses. We are 49 so can only borrow for circa 21 years. There is a house we love at circa £750k (SE) monthly mortgage payments would be circa £2k a month. We have had a much lower rent renting from DP's uncle until now so aware we will need to budget and plan more going forwards. Would £2k a month until the age of 70 feel too high? Is it too risky with our ages or do you just sell it and when you need to? Will have approx £75k in savings remaining with our current savings and rest of inheritance. No other debt. Would be interested to hear how it has gone taking on a bigger mortgage at this sort of age thanks x ps I know it was a big inheritance but we would much have preferred if MIL was still here xx

I would very much disagree.

Her retirement age is going to be 67 (or possibly 68 if they change the rules). So that's a three year gap, 18 years in the future when she retires.

18 years from now the relative value of the monthly payments she is making will be much smaller (although the absolute amounts will remain the same) due to inflation.

Although, as the saying goes, past performance is no guide to the future, if you look back to 18 years ago then £100 in 2008 would only be the equivalent of around £60 today due to inflation.

So the OP is looking at three years worth of payments, 18 years in the future that might only be 60% of the equivalent value today. She will also likely be thinking about overpaying between now and then anyway.

I really don't see the problem with this.

I’m late to the party but a few thoughts from the other side of the world.

• you can afford the house so that’s good. Re your pension, this is one way to help fund it. Pay off the house, downsize and you should have a cash buffer.

• The way I read on Mumsnet that you get penalised if you overpay by more than 10% is a rort by the banks imo. Find a product with no penalties so you can overpay to your heart’s content.

• So, how to overpay? 1) Make an extra payment onto the principal almost immediately. This will enable you to start properly paying off the principal with your regular payment (because your early repayment days are almost all interest - just pennies off the principal). 2). Choose an amount you can afford to pay in your worst month and set that as your direct debit. This will buffer you from rises and will increase your overpayment as interest rates fall, all without you noticing. 3) If your interest is credited to you monthly, make your payment fortnightly https://www.canstar.com.au/home-loans/weekly-fortnightly-monthly-repayments-better/.

We paid our 30 year mortgage in under 14 years doing all this and saved tens of thousands in interest. We had set our direct debit amount so didn’t notice as interest rates increased. We were stung for one month before I rang the bank and asked for the state of play. (They had withdrawn the difference from what we had previously paid). We increased our direct debit but had had pay rises over the years so that was covered. We then didn’t reduce the payment as interest rates came down.

A mortgage until your 70th is not great but you can always downsize if you do not manage to get it paid off early. The difference will be well eroded by inflation anyway.

Think about private renters who do not even get the opportunity of building equity. What do those people do in their 70s?

I still don’t get why you don’t do less years and pay a higher amount as you seem to have a spare £5k a month