Are we mad to consider borrowing the max?

chelseablue

We are currently looking to move house and it is becoming clear that we could get a better house if we borrowed more (pretty obvious I guess)


The calculators on Nationwide and Halifax have both said we could borrow £249,000


We originally didn't want to borrow more than £200,000 over 30 years


But if we did borrow say £240,000 and increase the term the payments would be about the same as borrowing £200k over 30.


Would appreciate others opinions on this plan of action

submarine76

As long as you meet the affordability criteria I don't see the problem, if you think you will be there for the long haul then perhaps it's a better option.

lee111s

Can you afford it is the main question? Are you simply going to be working JUST to service a mortgage or will you be able to have a life? Will you be able to afford holidays? IMO there's no point stretching yourself too much that you resent the fact that you can't do the things you enjoy doing in life because you can't afford them due to the amount you're paying off your mortgage.


As interest rates rise, it'll cost you more if you have a larger debt (obviously)


Don't forget that a larger house will probably mean higher council tax, higher energy bills (bigger space to heat, more lights) etc.


What age would a 30 year term take you to? Are you comfortable paying a mortgage for that length of time or would you like to consider early retirement?

chelseablue

Im 32 and my partner is 26, so 30 years and I'd be 62, him 56


I've never considered early retirement, a week's holiday at home and Im bored!


I'm the type of person that would overpay as much as I possibly could to lower the amount we owe

lee111s

Then go for it

getmore4less

People never consider early retiement at 30, ask those at 50/55 what they think as they look forward to 20 years work ahead of them

The best option is to plan to retire early so you can make the choice when the time comes, remember 60 is early retirement I still think 55 is a good goal with 60 as the backup plan if you don't manage 55.

Debt repayment is part of retiement planning anyway and 30 year term fits OK just needs savings/investments as well, some of that being in a bigger better house mortgage free is a valid plan.

The thing with stretching is it depends on context, in the old days it was the only sensible thing to do as inflation sorted things out for you.

Now it is a bit harder and you need some other help, like being in a career that still gives income increases.

A SOA and some budgeting will tell you what you can afford, as long as that is more than what the lender thinks you are ok.

Keep some cash flow money back.

getmore4less

I am a fan of longer terms for those that can be disiplined to overpay/save to a level that will give a sensible term.

chelseablue

At todays interest rates borrowing 240,000 over 40 years would be about £790 a month


Our take home pay is almost £4,000 a month

HappyMJ

chelseablue wrote: »

At todays interest rates borrowing 240,000 over 40 years would be about £790 a month


Our take home pay is almost £4,000 a month

Don't use today's super low fixed interest rates to figure out affordability. I would use the interest rate the mortgage reverts to after the fixed term has ended and add at least 1% to that.

So...a £240,000 mortgage at 5% would be £1,158 per month. Is that amount affordable...on £4,000 a month it is so go for it.

At 7% interest the repayment would be £1,492 per month which is still under 40% of your take home so still affordable but only just.

If you pay somewhere around £1,200 a month (overpaying by 2% of original borrowed amount per year) you'll ride out any changes in interest rates for quite a long time.

getmore4less

More about what you can afford, think current payment and what you save every month that needs to be sustainable.

£240k 40 years £790pm you are working on 2.5%

think
20y £1270pm
or 5% £1160pm
or both £1600pm

Sensible affordability is somewhere between £800pm-£1600pm.

The other risk senario to look at is loss of income, the longer term makes that much more feasable.

I would say if £1200 is doable, £1600 if belts tightened and £800pm is doable on 1 income(with a bit of savings back up) you are well covered.

early overpayments will make this much less of a risk going forward.

I would want 6-12months expenses saved as back ASAP and start with at least enough to do 6month on one income.

chelseablue

Current mortgage is £480 a month (going to miss these days!)


Plus we also pay £400 a month childcare.


Most months we save £1,500