A couple of years ago, we caved into the nesting instinct and bought a house. So far economically it was not worth it, as the house upkeep is quite significant.
With a 2.7% interest rate on 20-year mortgage, every $1 K paid in the first year saves $0.7K on the interest over the period of the mortgage. However, if you are investing the same amount it at 5% into something else you
could get as much as $2.6 K. The question is: are the additional mortgage payments worth it or?
The challenge with British mortgages is lack of certainty. Unlike the USA in England is almost impossible to get a long term fixed rate mortgage. All the risks are with the house owners. We made an overpayment (~$7 K) last year and want to do the same this year. We asked our bank to maintain the same monthly payments. This will either reduce overall mortgage time or (should the interest rate increase) maintain the same monthly payment. There are no expectations that the salaries will follow up the inflation.
It’s almost impossible to get a long term fixed rate mortgage. Mainly for two reasons: the banks refused to take any risk transferring it to the citizens and a juicy 0.5% commission, every time you get a new mortgage.
$325 K – 20 year mortgage at 2.73% (1,760 monthly payments) – cumulative $427 K ($102 K is interest).
$325 K – 20 year mortgage at 2.73% (1,760 monthly payments) with annual $7K overpayments – cumulative $399 K ($74 K is interest) – paid within 15 years.
What would you do? What are your assumptions going forward?