Mortgage maths question

secreticicle

Hello, I wondered if you could help with what might be a stupid question.

I'm a first time buyer based in London, and my partner and I are looking to buy a 2 bedroom property. Our instinct is to look for a 2 bed terrace, rather than a 2 bed flat to give us some proof against drop in house prices and weather the long term storm. We have both rented for 10 years, and it feels that we should stop throwing that money away.

However, I was doing the maths. In principle, if you had a deposit of say £100K (we don't have that much but it's easier maths!) and were looking to buy a terrace for £350K - I guess over 25 years, you'd be paying back approx £400K for a £250K loan right?

Would it be better to buy a 2 bed flat for £250K and put that on a 12-15 year mortage and end up paying say £200K over this time frame? You are then obviously with a property worth £100K less, but you have saved £100K on a mortgage, and if you needed to upgrade in say 5 years time, you would have paid off more on a smaller loan, rather than taking a bigger loan? And you'd also get a better interest rate as you'd have a better loan ratio?

Am I making any sense? Is it better to take a small loan to overpay as long as you can? It seems that there is a lot of money to be saved in this instance.

Any help would be much appreciated... apologies if I sound a bit stupid. :j

Dave_Ham

Its a perfectly valid thought and you are accurate in your assumptions.

What you must be mindful of is that interest is typically front loaded and as you state, the longer the term the more you will repay relative to the term.

No-one knows the the housing market will look like in 5 months, let alone 5 years but being conservative with your first purchase is a sensible, pragmatic approach..

Good luck

CLAPTON

if you are happy with a 250,000 house then why buy a 350,000 house?
it is certainly true the 250,000 house will cost you less