Downsizing to Reduce Mortgage Term.

Lancs78

Hi everyone. Would like to know pros and cons and also advice from anyone else who has done this. 
We are a young couple with an 18year mortgage living in a detached house, with 100k left on the mortgage. We don’t have kids so therefore the house we have is too large for us. Our idea is to downsize to a 2 bed, which would give us approx 90k in equity, reducing our mortgage to around 40k. Instead of continuing to pay our mortgage for 18 years we are thinking of increasing our monthly payments slightly (by £50 a month) to reduce our mortgage term from 18 years down to approx 7. This would have us mortgage free before we are 50. We could then use the money we were paying for a mortgage to top up a pension, have spare money to enjoy more holidays. We could even look to go part time with work.
Has anyone else done this ? What have your experiences been ?

AdrianC

Don't forget all the costs of moving... SDLT, legals, etc etc.

Why not just overpay your current mortgage? It's only £100k... Assuming 2.5%, that'd put your current repayments at £575/mo. Put the extra £50 in, and your term comes down roughly two years. Let's say the move would cost £10k, all in. Put that in, along with the increased repayments, and your term is down another two years.

getmore4less

£60k over 18 years with decent LTV say 1.5%   ~ £320pm  total interest over 18 years around £8.5k

What's the cost of moving  and what will the saving be running a smaller house.

Biggest problem we had when looking was 2bed houses most had small(tiny) rooms downstairs had to go looking at older 3 bed with big rooms or more modern 4 beds to get the room size.


Numbers don't look right for a £100k 18y and £40k 7y needing 50pm extra
£100k 18y 1.5% £530pm
£40k  7y  1.5% £500pm

hazyjo

People tend to accumulate 'stuff' and upsize over the years. Are you likely to, or are you very minimalist? How big is your current house? Personally, I can't imagine any house being too big.

You say your current house is detached - I certainly wouldn't want to give that up! You are likely to regret going to a semi or terraced property.

I've moved 8 or so times. I'd suggest it's very unlikely you'll stay in the same house forever. Having a house with more equity gives you options later to move or downsize when you're much older.

If you do decide to stay, you will receive pay rises so I would use that to reduce the mortgage term. 18 years ago I was earning nearly half of what I earn now! That's not from promotions, just increases. There are two of you as well.

Are kids likely to be an option later? I am wondering whether downsizing is a knee jerk reaction to them being unlikely in the future (hope you don't think I'm speaking out of turn).

How long have you been in your current home? I presume you had a 25 year mortgage which would make it around 7 years ago. I suppose that's long enough to know if you need the space.

Part time would be lovely, but make sure at your ages a part salary would still allow you to have holidays, even without a mortgage. If I lost even half a day a week, I'll be at least £300 down a month. (It's only a London secretary salary.) Some people think by losing the mortgage they'll be rich. I lost most of mine when I last moved and I wouldn't say I feel that much when better off. I only pay £300pm and it's no longer my priority to pay it off.

Tiglet2

Can you pay a 10% lump sum off your mortgage each year without penalties?  If you reduce the term every time you make a lump sum repayment, the length of your current mortgage will reduce significantly.  By the time you are 50 you may nearly have paid it off without downsizing at all.  Then you will be able to downsize without the need for a mortgage at all, putting more money in your pocket.

RelievedSheff

Having moved from a two bed semi into a three bed detached recently we certainly would not consider down sizing back to a two bed. We appreciate the extra space that this house has even though on paper it isn't a lot of extra space it does feel so much more spacious.

Also don't underestimate the importance of the property being detached. Again we would not even consider having an attached property again since moving to detached.

Why not just look to reduce the term of you mortgage when you remortgage? That is exactly what we intend to do next year. We are currently over a year into a two year fixed rate over 25 years and will be looking to reduce that term to 14 years when we remortgage next year.  Either that or over pay on your current mortgage to bring down the term.

getmore4less

Don't forget in your 40's looking to be mortgage free by 50, unless you pick carefully there is a chance you will need/want to move again when moving into your 60's  
Health might dictate one level living, retirement may want a different location more free time a bigger garden etc.