Irrational thought

Dr_Eye

Hi,

More of a comment than a question:

I have approximately 100,000 equity in my current house but wish to upgrade. The price of the new property is in the region of 260,000 hence I will be looking at a mortgage of approximately 160,000.

Earnings are (joint) £66,000 and I have no loans/credit card debt. I also have savings in the region of £40,000 so all in all I am comfortable with the size of the mortgage.

However I seem to be consumed with keeping the payment below the £1000 a month mark. £990 is ok, but £1010 isnt - I keep jiggling calculations by using savings and not using savings, extending the term, not extending the term and all to keep it sub £1000, which I know is immaterial anyway once a interest rise kicks in!!

Why the irrational thought?

Peelerfart

Possibly everyone has a price that they are prepared to pay .
Above that no, below that OK.

dunno if it's right but if it is I dont think it's a bad thing.

dimbo61

First of all you want to buy a property below £250k or else you pay 3% stamp duty so £250,000 OK and £250,001 means £7500+ stamp duty
You only pay 1% up to £250k
Look for a long term fix of say 5 years and overpay each month up to the £1000 a month figure and in 5 years the mortgage should be a whole lot less
Keep 3/6 months of income as emergency fund and use the rest to put down a bigger deposit
Only my ideas

Dr_Eye

dimbo61 wrote: »

............Keep 3/6 months of income as emergency fund and use the rest to put down a bigger deposit
Only my ideas

Yeah I am leaning towards that to be honest - the silly thing is I have never had that sort of amount in savings before and its difficult 'letting it go'. See there I go again....irrational thought.

opinions4u

Why the irrational thought?

There is nothing remotely irrational about budgeting like this.

£990 errs on the side of caution. £1010 is reckless.

Those who have a £26 direct debit for a mobile phone who budget it as £25 end up with bank charges. Those who budget it as £30 end up with a spare £4 at the end of the month.

Your approach only becomes irrational if your budgeted figure is somewhere in cloud cuckoo land!

Nice_guy

An offset mortgage sounds perfect for you. You could offset all of your 40k in savings against the mortgage meaning the interest will only be charged on 120k. The 40k in savings is fully accessible at anytime in case you need access to it.

My offset mortgage is interest only and I make extra payments into my savings pot each month. So for your case an interest only payment on 120k @ 2.99% is roughly £300p.m, you then simply add £700 per month to your savings pot (40k) bringing your total monthly payment to £1000. With the offset mortgage you are in control of how much you pay (you have to obviously make the interest payment per month), so you don't have to breach the £1000 if you don't want to.

Even with impending rate rises, if your mortgage rate became 6% the interest only payment pm would be approx £600, then you would add £300 to your savings pot per month to equal the £1000 per month payment. For reference you would still be overpaying in this example compared to a capital repayment mortgage. At 6% over a 25 year term (term is an assumption) the monthly payment on a capital repayment style mortgage would be £782. So by paying £1000 per month you would still be overpaying by £218pm.

Nice_guy

To actually answer your question, IMO it all depends what your target is. If you do not want to breach £1000 p/m for whatever reason i.e. comfortable paying that amount/can't afford to pay more than this/can afford to spend more but would rather spend it on imprvoing lifestyle etc then you are right in your way of thinking.

My target is to pay off my mortgage before I'm 30 (28 tomorrow!) hence my monthly payments are what they need to be in order for me to meet my target.

Dr_Eye

opinions4u wrote: »

There is nothing remotely irrational about budgeting like this.

£990 errs on the side of caution. £1010 is reckless.

Those who have a £26 direct debit for a mobile phone who budget it as £25 end up with bank charges. Those who budget it as £30 end up with a spare £4 at the end of the month.

Your approach only becomes irrational if your budgeted figure is somewhere in cloud cuckoo land!

I thinks its irrational if it has no bearing on my budget (well perhaps a tiny bearing) - I can afford upto £1400 a month - my point was its seeing the figure above £1000 - the actually amount is not the issue, its just the way it is presented, ie 4 figures instead of three (if you get my drift).

DVardysShadow

Dr_Eye wrote: »

Why the irrational thought?

Possibly because you don't really know how much you could afford, but you know you could afford £1000.

I would suggest you look at your savings plus mortgage for a few months and look at what you can comfortably put away to get a more accurate figure.

OK, I see now that you do know.

opinions4u

Dr_Eye wrote: »

I thinks its irrational if it has no bearing on my budget (well perhaps a tiny bearing) - I can afford upto £1400 a month - my point was its seeing the figure above £1000 - the actually amount is not the issue, its just the way it is presented, ie 4 figures instead of three (if you get my drift).

So you're building in some slack for potential interest rate rises.

Good instincts. Not irrational.

It might not be a conscious decision, but a worthwhile instinctive reaction to a situation.

Dr_Eye

opinions4u wrote: »

So you're building in some slack for potential interest rate rises.

Good instincts. Not irrational.

No no no. Nothing to do with potential interest rate rises or infact anything rational like that. I mean, if the figure is £999 I feel comfortable with it, but if its £1000 I get slightly tetchy, despite there being only 1 pound difference - its how it's presented. It must be my subconscious picking up four figures and setting off a red light.