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.

Longest term while you are young and have other outgoings.
It’s only mumsnet that is obsessed about paying off early.

We have always been advised to have the longest term, it is better to have cash available for life costs than slinging everything at a house you aren’t staying in. There’s plenty of time to reduce the term when you are older.

We still have 24 years on ours at 46 and 51 as we have moved a lot, in reality our next couple of remortgages will reduce the term and we will also inherit so will clear it in 10-15. Whilst we have childcare etc to fund the mortgage is not a priority.

Yes but that’s not always the most important thing. Whilst interest rates were low especially true. Where people are having to borrow a lot to get on the ladder, having some money available in cash is better than chucking it all at a mortgage. If you have childcare etc to fund it makes no sense to worry about a shorter mortgage. You are better off having a decent emergency fund in the bank than a reduced mortgage.

eg 40 year mortgage with a £50k slush fund in the bank is preferable to a 30 year mortgage and £5k savings. Yes you are paying interest but it’s not always the most important factor.

Going against the conventional Mumsnet preference to pay off a mortgage early - you can pay your minimum amount every month and pile any overpayments into your pension, where you will get your tax back on it and maybe your employer will match up to a specific amount. I am assuming you are quite young, so loading up your pension early gives it time to really grow, and you will be able to benefit from a 25% tax free lump sum at retirement which will probably pay off your remaining mortgage. Pension savings are now uncapped as well.

If I could go back and do it all again that's what I'd do, instead I split it between the two and now realise how big my pension pot (and from that my 25% tax free lump sum) could have been. I have saved a lot in interest as my mortgage still will be paid off early.

Lots of assumptions here. You mention 'other outgoings'. I'm assuming you mean children here? @YourGreenDreamer hasn't mentioned any children. If she can only afford a 35/40 year term without children, that doesn't bode well if she does decide to have a family.
It's an assumption that everyone can reduce the term when they are older. There are so many variables here. This plan relies on increasing salaries in advance of inflation and inheritance. It might work well for young professionals who expect rapid salary progression and those who come from wealthy families but not everyone has enjoyed rising salaries and many will not inherit a penny.
It's potentially destructive to advise people to take on significant financial risks because of a string of assumptions.

Well it's just maths.

this feels a belittling unnecessary message?!

if you meant it that way, why?

I mean it's not something that needs any special expertise to implement or explain - it just happens automatically because that's how the maths works. If you pay off the capital it reduces, so therefore so does the figure you're paying interest on.

If the interest rate rises that will bring up the amount you have to pay, but it still won't be as much as it would have been if you hadn't paid off some of the capital.

Hope that makes sense.

It depends, actually, on your circumstances and what options you have for alternative uses of the extra money. There is no right or wrong answer
Yes, you end up paying more interest on the mortgage over the next 2-5 years, assuming that's when you'll look to sell this place and buy a more long-term property. But, if you put the saved money in savings at an interest rate higher than the mortgage rate, then you are effectively making money. Again, depending on the tax rate you are on, as you might have to pay tax on savings interest.
Also, your circumstances. If you overpay on the mortgage, do you still have enough cash savings to cover financial emergencies? Once you overpay, the mortgage company won't just let you have some of it back, without a full remortgage process.
If your circumstances will allow you to keep this place as a rental when you buy your bigger house, then consider that a % of the interest payment is tax deductible and none of the principal repayment is. So, would you have enough spare cash for the deposit for the bigger house of you overpay now?
Finally, the advisor might be just telling you enjoy your life, go travelling, live a little while you are young, and anticipating that you will need cash for that.

.

Pensions do not go very far if you are still paying a mortgage / renting.

Clear down your mortgage as quick as you can.
Every penny of capital overpayment makes a big difference over the term.

thank you. taking it on board

He will likely get the same commission or within a tenner whichever she went for tbh.

That said it does seem quite a relaxed attitude and as brokers we would never put someone off overpaying their mortgage, or i can't think of a scenario where we would anyway.

Sometimes a lender will insist on a longer term in order to lend, especially if you are stretching affordability so that might have been the case.