Advice for 1st time buyers

booey1

I'm hoping to get some advice:

My wife and I are both 24 and 1st time buyers.

We are about to get a mortgage of 85k to cover buying a house and we have about 10k spare in savings. We want to pay our mortgage back as fast as possible by over paying each month.

What type of mortgage is the best to get, I'm tempted by an offset one, is that a good idea?

Also our mortgage broker says people change mortgage every 2 or 3 years, does that mean we should only get at most a 3 year fixed rate?

Thanks very much for your help!

JoeK_3

booey1 wrote: »

I'm hoping to get some advice:

My wife and I are both 24 and 1st time buyers.

We are about to get a mortgage of 85k to cover buying a house and we have about 10k spare in savings. We want to pay our mortgage back as fast as possible by over paying each month.

Most modern mortgages allow an overpayment of 5% - 10% of the mortgage loan amount or say £500 capital at anytime.

booey1 wrote: »

What type of mortgage is the best to get, I'm tempted by an offset one, is that a good idea?

These are questions that you need to discuss with your mortgage broker but generally an offset mortgage is suitable for people with savings, as their savings are offset against the borrowings and therefore they pay interest on a smaller mortgage balance.

booey1 wrote: »

Also our mortgage broker says people change mortgage every 2 or 3 years, does that mean we should only get at most a 3 year fixed rate?

Thanks very much for your help!

True, most people remortgage at the end of the product and this is a good time to use the savings made to overpay on the mortgage. This way the new lender is helping you to pay the mortgage off quicker by giving you a discount.

There is talk of a 0.5% interest rate increase in May and if you are interested in a fixed rate, you need to move fast, as all the lenders are already increasing their fixed rates.

JoeK

jamesd

You might consider an interest only loan and normally pay the full repayment amount. That gives you the flexibility to decrease to the interest only amount without having to ask permission from the lender - due to unemployment, christmas or whatever else.

An offset mortgage is good if you have and want to keep savings of around 30% of your mortgage amount. It sounds unlikely that you do, so you may well be better off simply overpaying. When considering an offset mortgage, do remember to account for the interest you're not getting on your savings, since that is a key factor not often included in pure mortgage calculators, which tend to just show the big mortgage interest saving without showing the similarly big lost savings interest.

You could go for a split between offset and non-offset, with the offset portion relatively small, a bit more than your normal savings. That would get you the lower interest rate that the main mortgage would typically have while still being able to offset on part of it. If you did this you'd want to be sure that any tie-in periods were the same on the two mortgages.

If you're comfortable with investment ups and downs you could also consider using your stocks and shares ISA allowances to buy funds, knowing that in general over the long term those will grow by more than the interest you're paying on the mortgage.