Advice Needed: Type of Mortgage for a 5 year stay

cpo52

Hi Everyone,
I'm currently going through a divorce where I need to sell the family home. The sale will pay off the existing mortgage on this house. I have 2 children still at High School in the town I reside and want to purchase a smaller property to house myself and the kids when I have them stay. However, I only see me staying here until they leave High School and move into higher education. My youngest child is 12 and has just started 2nd year of High School, so has about 5 years to go before he leaves. I'd be interested in views on what mortgage would be best to have, considering I may only be here 5 years. After many years of being saddled with debts, I feel the mortgage needs to be relatively small ( 30-50k ) so would appreciate low monthly payments. Some friends have mentioned interest only or offset mortgages as options?? Any advice would be gratefully received, specially from those who have gone through similar. TY

zagubov

I see the attraction of an offset mortgage if you have any savings (we found one that was very useful). I should point out that offset mortgages are a bit thin on the ground now.

For us, the plusses were:
it can be a good way of keeping costs low, and building up an emergency fund and allowing you the flexibility to pay into your pension, or pay off your mortgage pr keeping the money for when the boiler fails.
You can pay money from your savings into the mortgage account when and if you see fit.

And in your case, it sounds as iff you're in a good school area so you may be able to sell easily and move on.

But, you really need to check the details and think about it. The negatives include, at the very least:
money you're saving can be too accessible if your spending isn't rigorously controlled.
You could end up selling the house without having much increase in equity, unless prices are rising fast in your area.
Do you know if you're unable to claim certain benefits if you have savings which aren't actually spent on the mortgage?
The interest rate will be higher than a repayment mortgage.

You can repay it as if it was a repayment mortgage, but we went back to our bank we're now on a genuine repayment mortgage which is cheaper than our offset.

I'm sure others will be posting soon with their own experience of the benefits and pitfalls.

AnotherJoe

I'd second the points zagubov made.

Also, I'll make the point that the type of mortgage (apart from interest only) doesn't really affect the repayments. What affects the repayments is the length of the mortgage (eg 25 years, 30 years etc) and the mortgage rate which is affected by how long the fixed period is, eg a 2 year fix a 5 year fix and so on, don't get confused by how long the mortgage is nominally and how long the fixed rate period is. The % of the value of the house being borrowed is also a factor but that's the same whatever the mortage type.

So If you want low repayments you need a mortgage with a long length, and then second factor, one with a lower interest rate.

Interest only mortgages are pretty rare these days and won't save you money over the period of the mortgage since what you save on the monthly repayments will have to be paid back when you redeem it. You are just putting off when you have to pay it back. given the small size of the mortgage you are looking at, then on any reasonable mortgage term the difference per month will be small, maybe £50 a month.