Mortgage Advice Fixed or Variable

jp912

Hi,

I am a first time buyer wanting to buy a 120k home and have 40k to put down, so needing to borrow 80k. After taking out the mortgage I will have around 18k a year spare to save (I live a frugal lifestyle) Here are the options I have created.

1. 40k on a variable and put everything into paying it off over the next 5 years.

2. 40k on a fixed rate (1.98%) over 5 years, put my saving each month into a 5 year ISA (2.3% is the best I could find) then once the fixed term has ended and the ISA has matured, pay off the mortgage in full.

Let me know your thoughts and thank you in advance, I really appreciate it!

M2808

Sounds like you're in a very good position.

Personally I would take the fix as that sounds like a very reasonable rate. I also believe with most (all?) fixes you can pay of 10% of the original mortgage value (or possibly your current mortgage value) per year, so if you managed that, by the end you would have it 50% paid off (unless it is current mortgage value, but it would still be a fair chunk)? - Please correct me if I have misunderstood this.

kuratowski

Do you have other savings (apart from your 40k deposit)? Owning your own home can be unexpectedly expensive, for instance you may need to replace the boiler, cooker or washing machine or the plumbing might spring a leak (or all of the above!). So if you don't already have something set aside for such expenses, don't max out the mortgage payment, i.e. I am saying option 2 sounds better!

Having said this, not all the fixed term ISAs allow you to drip the money in gradually (some of them only accept a lump sum) so do double check the terms & conditions of the product you're considering before you decide.

jp912

Thank you for your advice. I'm renting at the moment and I have 35k in easy access savings and the other 5k in an help to buy ISA.