This is the Baby Step that I’m most excited for, our house situation is a little different to most other peoples but this is still going to be a super important step for us.
Baby Step 3b (BS3b) is to save for a house deposit.
According to Dave you should ‘put at least 10–20% down on a 15-year fixed-rate mortgage that is no more than a quarter of your take-home pay’…that’s a lot to take in when you’re thinking about such a big purchase so lets break it down a little bit.
To get a mortgage in the UK at the moment you generally need a minimum deposit amount of 5% BUT to get a good mortgage interest rate you usually need more that 20%, if you can manage to get nearer the 40% range of deposits then you will get the best of the best interest rate deals.
The bigger the deposit, the better the interest rate, the lower your monthly repayments, the cheaper the mortgage!
15 year fixed rate mortgage
Ideally you should try and find a 15 year fixed rate mortgage as it’ll save you big money in interest in the long run, versus a 30-year or variable rate mortgage.
There are so many mortgages on the market at the moment which can make it hard to know what to look for, the MoneySavingExpert website had a Mortgage Best Buys tool that can help you compare whats currently available and give you a better idea of the difference it can make to costs – MSE Mortgage Best Buys Tool. There is also a handy calculator tool from Pigly that helps you compare fixed rate and interest-only variable rate mortgages and see the real numbers.
No more than a quarter of your take home pay
This bit is just for the simple fact that it’s just good sense, you don’t want to buy a house that stresses you out each month trying to find the money to make the mortgage payment. If your home is constantly putting you in a state of stress because of the size of the mortgage payments you wont be happy living there!
So, where should you save?
Online Mortgage Calculators and Tools
Need some help with the maths? No idea how much you need to be saving? Here’s some fab online tools that can help you out!
- Mortgage Calculator UK – Play around with different interest rates and see how it affects the monthly payments, look at projected payoff figures
- MSE Deposit Calculator – Not sure what size deposit you’ll need? This calculator will help your work it out.
- Simple Mortgage Calculator – Want to see how much difference overpayments, no matter how small, could make to your mortgage? This site has a fab tool to show you exactly how much time you can shave off of your mortgage and tells you the amount of interest you’ll save too.
Are you currently saving up a deposit for your first home? What % are you aiming for?