FIRST-TIME buyers Jan and Aleksandra Girman used a simple trick to save thousands of pounds in interest payments on their mortgage – and get debt-free quicker.
Buying your first home is an expensive business – and the bigger the mortgage you take on, the higher your monthly mortgage repayments are likely to be.
And while it can be tempting to do everything you can lower your repayments, if you can afford to pay a little more, you could save thousands of pounds in the long-term.
When you take out a mortgage, you have to pick a term – this is the length of time over which you will pay off your loan.
The most common term is 25 years – but you can opt for a longer one of up to 40 years, or reduce it right down to, say, 10 years if you want to pay back your loan more quickly.
Jan, 35, and Aleksandra, 40, chose a shorter term of 21 years to slash the amount of interest they’re paying back and get mortgage free ahead of schedule.
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If you pick a shorter mortgage term, your monthly repayments will be higher each month – but, you'll ultimately pay less in the long-run in interest repayments.
That's because your pay off your debt quicker, meaning you don't rack up as much in interest charges.
But shorter term mortgages are becoming less common among first-time buyers because of soaring house prices.
The average UK home now costs £283,496 – a 12.8% increase from a year ago, according to the Land Registry.
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This means buyers are having to take on bigger mortgages, with higher monthly repayments.
Many people are stretching out their mortgage terms as a result, to make their monthly repayments more affordable.
But while this may make things more bearable in the short-term, it'll cost you more in the end.
Picking a 21-year term instead of a 25-year mortgage means Jan and Aleksandra, who live in Newmarket, will save £8,682 on interest repayments over the course of their mortgage.
In total, they will pay £43,343 in interest on their loan, compared to£52,025 if they had opted for a longer mortgage term.
Jan, who works for a software start-up, and Aleksandra, who's an accountant, moved into their three-bed family home in April this year.
The Sun picked Jan’s brains on how he and Aleksandra landed their dream first home for our My First Home series.
Tell me about your home
It’s a three-bed semi detached house located in a residential development called Saddlers Lea in Newmarket, Suffolk.
There are three bathrooms and a toilet downstairs.
The kitchen and dining room is open plan, but there’s a separate lounge.
We have a good-sized garden at the back, big enough for our Belgian Shepherd dog and our cat, Mr Snuggles, to roam in, as well as our two kids, 14-year-old Lucian and nine-year-old Scarlett.
How did you decide on location?
We’ve been living in Cambridge for the past 15 years as renters.
We loved the area – but there’s no way we were going to be able to afford to buy a house there.
According to Rightmove, the average price of a house in Cambridge is £543,798.
We had to look further afield to get on the ladder – Newmarket is more affordable, and we have family and friends there.
How much did you pay for it?
The house was £384,950 and we put an 8% deposit down for it at £30,000
We took out a £277,960 mortgage for the house over a 21-year term with a 1.41% fixed interest rate for two years.
Our monthly mortgage repayments are £1,290.
Our priority was to pick a mortgage term which would allow us to pay off our mortgage as soon as possible to save on interest repayments.
It’s a big chunk to pay per month, but it will help us save money in the long run.
To make buying the house affordable, we used the government’s Help to Buy scheme.
This lets you take out an equity loan from the government worth up to 20% of the value of your property – or 40% if you live in London.
We took out a £76,900 equity loan – which reduced the amount we needed to take out for a mortgage.
How did you save for it?
Just under £20,000 of the deposit came from money I had saved into a share scheme at a company I previously worked at.
We were given the option to buy shares in the company and when the firm was bought out, all shareholders had to sell their shares back to the company and were given the cash equivalent of what they were worth.
But we still needed to save another £10,000 for the deposit.
We cut down on the amount of holidays we were taking – previously we would spend £4,000 on holidays taking the kids away abroad and we halved that.
I kept to a strict food budget too – taking a packed lunch into work and staying away from cafes saved me around £30 a week.
We also made the most of the government’s Lifetime ISA (LISA) scheme to get £2,500 free to put towards the cost of buying the house.
Anyone between the ages of 18 and 40 can open one to save for their first home, or their retirement.
You can put in a maximum of £4,000 a year until you’re 50, and the government adds an additional 25% bonus onto what you put in.
We saved £8,000 into the scheme, which meant the government gave us £2,000.
We didn't need to buy hardly any furniture – nearly all of it was from our old rented flat.
Advice for other first time buyers?
Try and buy as soon as you can.
We wish we had got on the ladder sooner – house prices are going through the roof so there’s a risk of being priced out of the market.
If you’re buying with someone else, be transparent about your finances.
You need to work together to meet your savings goal so come up with a plan to make it work.
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