| Comment | When making a decision on how much to spend, figure out what the total cost of compound interest over the expected mortgage term is going to be at the rate you're paying it back
Ie. if you can afford to pay off £1000/month, and you buy a property with a mortgage of 150k at average 3%, you will pay it off in 15 years and pay £36k in interest. If you buy a property with, say, another bedroom with a mortgage of 200k, you will take 23 years and pay £77k in interest.
So if you're looking at a 3 bed flat that is 'only' 50k more than a 2 bed one (for example), ask yourself if the extra room is actually worth 8 years more mortgage and the additional £91k you will actually pay back.
(obviously this assumes you live in the same place throughout, but it illustrates how much you can save by aiming to take out a smaller mortgage you can pay back in a shorter term rather than, as most people seem to, mortgaging themselves to the hilt for their dream home as their first house, and spend most of their lives paying back the compound interest on a box room they didn't really need) |
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