Q I am expecting to buy a small flat, for between £90,000 and £120,000 with a deposit of 15% – just before my 50th birthday. I will retire at 67.
Although I can comfortably afford the payments of a 17-year mortgage, as a super-cautious person, I would prefer a slight reduction in the monthly outgoings of a 20-year mortgage. I like to save and have a good amount of emergency money.
I do expect to overpay my mortgage, anyway, and aim to pay it off in 10-12 years by means of a small monthly contribution, the odd lump sum from the excess of the emergency money, and a small lump sum when I turn 60, from a small private pension.
Taking all that into consideration, how likely am I to get a 20-year mortgage, given that I am due to retire in 17 years?
A I’m afraid I don’t know because it depends on what your income in retirement will be. But what I do know is that if it’s not going to be enough to cover your mortgage repayments once you’re retired, you are highly unlikely to get the longer-term mortgage that you want.
This is also the case even if you will have enough retirement income to cover the payments as they are now, but not enough to cover them after a lender’s “affordability stress test” to see if you could afford payments if interest rates went up.
On the plus side, if your retirement income is enough to pass the stress test, it’s likely that you will be able to get a 20-year mortgage, rather than one with a 17-year term, but I really can’t see why you would want to.
Extending the mortgage by three years may mean lower monthly payments, but it also means a higher interest bill overall. Given that you say you “can comfortably afford the payments of a 17-year mortgage”, you’d save money by sticking with 17 years.
But if you are determined to reduce the monthly mortgage payments, you would be better off using some of your excess emergency money to increase the deposit you put down.
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