First time buyer with decent deposit (a few questions)

jamesd

Grofit, for all mortgages with daily interest calculation (which is just about all, so don't worry about it) you're only paying interest on the amount actually owed on that day.

If you make overpayments or have money in an offset account the money you owe is reduced by that amount and you no longer pay interest on it.

For your situation you're looking at completely unnecessarily tying yourself into a tough schedule that leaves you limited flexibility. Better to go for an offset mortgage on interest only (if that doesn't cost more than repayment) and just stick the extra money you can overpay into the offset account. You're then not paying interest on it but if you have some reason to you have full access to the money.

Instead of clearing the mortgage you can just get it to 100% offset, at which point your mortgage interest is nothing but you have cheap borrowing available at the mortgage interest rate whenever you think it makes sense to use it.

Pick the longest available term because that increases your flexibility but does nothing at all to force you to take that long to clear the mortgage or get it 100% offset.

This leaves you huge amounts of flexibility for unemployment, the costs of raising children, buying cars or whatever else you do that might make it desirable to temporarily take back some of the money.

With an offset mortgage there's no need to have a deposit larger than the amount it takes to get the mortgage rate you're after. Better to put the remainder of the available money into the offset account to start that process off.

Grofit

jamesd wrote: »

With an offset mortgage there's no need to have a deposit larger than the amount it takes to get the mortgage rate you're after. Better to put the remainder of the available money into the offset account to start that process off.

Hey,

Thanks for the advice, but shouldnt it make more sense to pay it off rather than putting it into the bank, you still owe the money even if it is in your account, you just avoid the interest right?

So if i pay off 50k as a deposit or just 20k and put 30k in savings, I would pay the same interest but I still owe the bank more money on the latter so the mortgage would continue until i pay it all off... I guess it is handy having a lot of money in savings to use if needed but we dont have kids, although we do have a dog...

Lets say I was in a position where i had £90,000 in the bank and owed the bank £90,000. Would i just get charged 0 interest on my repayments... Obviously in this case it would make sense to just pay the bank the 90,000 and get it over and done with, but if I was to pay off the smallest amount possible and just save the rest until I had enough to literally pay it all off within one HUGE overpayment?

Is it a massive hassle to extend your mortgage if needed? or shrink it if that was needed? not that there is much point on a lifetime tracker with unlimited overpayments...

Pincher

So, you would much rather paying a fee to arrange an overdraft that you might not fully use, or a personal loan at 16%?

When you take money out of your offset account,
you don't need to ask anyone for approval.
When you add money to it, nobody stops you with a 10% a year limit.

Some people just like bondage.

Grofit

I cant see a scenario where i would need to get a loan or anything, and the line of work im in is pretty stable and pays well with lots of jobs going. So i just thought it would be best to blitz the payments then not have to worry about the debt for 25 years or whatever, i would always keep 15k+ in savings anyway...

Thanks for all the advice so far, its given me ALOT of good things to think about, and by the sounds of it an offset where i just throw money into savings and do it as a 25 year and just pay it off when i have enough saved up (which would negate alot of the interest anyway).

jamesd

Grofit, in the £90,000 case I wouldn't pay it off if I could just lend it to the bank and avoid interest. That £90,000 is flexibility and contingency money for me to use whenever I like and that's good to have. I'd keep that flexibility for as long as the bank would let me. And am in the process of doing exactly that with a First Direct mortgage myself, setting the term to the maximum they accept.

What I plan to do myself is invest when stock market buying times look good, as they do now. When there's a boom I plan to gradually take money out and offset it, so that I won't suffer so much in the inevitable downturn. This is part of a longer term plan to be able to live as I do now even if I became unable to work, as soon as I can manage it. And incidentally to enable early retirement if I want to do that.

Not paying off debt isn't part of my plan. I'm very aggressively saving and investing more than 60% of my income. It's just a case of how to optimise things within my risk tolerance and at the moment that's best done by having the mortgage and not offsetting most of it.