my mortgage broker says i should enjoy having a low monthly repayment on a 40year term, 2year interest fix and not worry about overpaying my mortgage. is he right?

[YourGreenDreamer]

I'm (27) in the process of buying my first house.

Broker put me on a 40yr 4.89% fixed rate. Monthly repayments will be £890p/m

Made myself feel better about the 40yr term by vowing to overpay my mortgage by at least 200p/m. Not ideal, but doable. especially as a serial saver.

Broker has told me to stop worrying and enjoy having a low monthly repayment as I'll probably be out of the property in a few years, won't be on the 40yr term forever, i'd have made some profit from selling and will be on another mortgage deal in 2 years. it's not my forever home and i do plan to sell in a few years but if i don't overpay, would i not risk my second mortgage still being a long term. i don't want to be paying interest until i'm old and grey.

How right is my broker? Should I "enjoy" paying just 890p/m or should I focus on overpaying my mortgage for at least the next two years?

he seems a bit too jovial and it's concerning.

i did some calculations last week.

even if i found a high interest savings account, if i repaid by a lump sum, i wouldn't have saved anywhere near what i could have by overpaying by each month.

it's still worth saving in a high interest account of course, but that should be in addition to overpaying each month if you want to get interest down

Broker put me on a 40yr 4.89% fixed rate
if by arrangement fee you mean the broker fee, i paid 295.

You paid him £300 to "put you on" a rate???

It's fine not to overpay, but he sounds like a shit adviser & you should do your own research rather than rely on him.

@YourGreenDreamer as others have pointed out, I suspect his commision is his main concern!!

Can you try another broker?

Yes, it would. If there's an appropriate savings vessel that will pay a bigger interest rate than your mortgage rate, it's the wiser choice. You need to check how the interest on both accounts is compounded: mortgages are usually compounded monthly so, if yours is, you want a savings account that also compounds monthly.

Your broker's advice is weird, you're right! She's saying "Don't reduce this massive debt, spend the money instead."

That can make sense for some situations, but definitely NOT if either:
Your loan term is longer than you'd like, or
You plan to sell up.

Both being true in your case, don't follow the advice!

i am honestly very worried about his advice going forward and even the ones he has told me in the past.

someone here asked why i couldn't have gone for a shorter term mortgage if i'm able to overpay and i'm now wondering if another broker could have found me something more suitable.

if i go ahead, i will definitely overpay

Still not getting how it would be less if you’re getting more interest on savings than you’re paying on the mortgage?

i have already paid his fee and my solicitors have started work.

i will find a free broker tonight. i'm honestly really concerned about everything now

Your broker is a conman looking after his fees

Thread here
https://www.mumsnet.com/talk/money-matters/4973601-credit-card-debt-how-to-clear-it-quickly-and-painlessly-for-free-no-gimmicks
spreadsheet here
https://docs.google.com/spreadsheets/d/1sCqgsXeOwe5NfwFkslED2QIPooWTWSmr7XEklE5Io-4/edit?fbclid=IwAR1Fa40Ode_IfAbllxv-zC4zynLQ3Nzn7dfhiD9k-3nk6Fs3iW8b5dSJwzg#gid=270442784

Have you considered an offset mortgage?

We used L&C. They're free and we found some great deals, it might give you some peace of mind to speak to them

Yes, I think the advisor is arguing for what makes him the most profit!

funnily enough, i was going to instruct them, but this broker seemed very hands on so went with him. i will check in with l&c mortgage. thank you

the £295 is not his commission @YourGreenDreamer that's just the arrangement fee.

He will receive a commission from the lender with whom he's trying to get you to sign with.

https://www.unbiased.co.uk/discover/mortgages-property/buying-a-home/mortgage-broker-fees

Hi, no I didn't mean the broker fee. Why pay a broker fee? I meant the fee paid to the mortgage lender for arranging the mortgage.
Fee free, not the only one I don't suppose:
https://www.landc.co.uk/p/remortgage-online?

I guess you spend your money how you feel most comfortable. But it's unlikely that a monthly mortgage of £890 will feel 'crippling' in say even 20 years time.
If you don't know what fees you pay, and if you can overpay on your mortgage, or how much you can, then you need to do some more research into how mortgages work and the best one for you.
As for not having a mortgage when you're old and grey, well it has it's positives. Having a mortgage is a bit like having a credit card, you are seen as more credit worthy.

Interest rates are expected to drop int he next two yrs I wouldn't be fixing for thatblogn! What if circumstances chnage in 2yrs and you can't move your stuck on a high interest rate for 40yrs!!! How much woukd you have to pay to break out of that deal if rates dropped even 1% which would make a big difference on your interest you pay?

Also for at least the first 5yrs most of you repayment is paying interest. Thats why it's always suggested to overpay for the first 5yrs as much as you can

Think you need to shop around or maybe stall buying for a while until you can afford something that'll be better

We've got one of these it's great. Got it about 20 years ago and it is a tracker, we've have some great rates with it!
You've got to be somewhat disciplined though or you spend it as fast as you pay it off, lol! :D

he says as the fixed rate is for 2 years i can remortgage in 2 years and get a lower fixed rate. or is that a lie too now??

he reassured me that i can always change the mortgage term after the 2 years? is this true?

what a shame that i now have to rethink everything he has told me

I don't think you can just change your mortgage after two years I think there is a early penalty repayment fee - even if you sell.
You need a repayment flexible mortgage that allows you to overpay and reduces the term, and ideally the term to be 20 years.
Get a new broker or just go through a bank/ building society x

I always overpay if i can because the more you overpay, the more of the capital you're paying off. When you remortgage you should be able to reduce your term provided nothing has changed.

I think the broker is just keen for you to buy the product he is trying to sell you. I would go direct to the mortgage provider considering his advice is so bad.

You can change your mortgage after 2 years if it was fixed for 2 years.

I don't understand the maths here. Why is it a smaller amount of money?

I would ignore him and overpay if you have spare cash after paying the mortgage each month

We were advised to overpay as soon as we could when we first took a mortgage out.

We only had a 5% deposit and to start with the majority of your payment is interest, whereas any overpayment goes off the actual balance (at least with Santander it did) so the earlier you start the more you end up saving in interest

Although best to deal with any other debt first, and make sure you have an emergency fund before looking at overpaying

As a PP says, at the end of 2 years you'll have hardly made a dent in the balance so unless prices shoot up you won't have increased your equity much

In two years the interest rates could go up or down, the broker can not guarantee a lower rate next time.

Inover payed and when my fixed rate was up the lender (we didn’t change) offered either a lower monthly payment with the same length of term. Or reducing the term but keeping the monthly payments the same. We paid off a 19 year mortgage in less than half the time thanks to overpaying.

Yes, it's true for some reason it's cheaper to take it over longer terms like the 40 years and overpay each year. Plus you never know what's around the corner. People could lose jobs if we get into the grips of a strong recession. I think your mortgage broker is tight and you can pay off extra each year. Then when you come to sell and get a new mortgage you could lose a few years then.