Got a Mortgage Offer

You received a mortgage offer. The letter is on the kitchen table. The monthly payment is more than you expected, and you have not yet told your partner the number.

This is the moment the mortgage becomes real. Not when you viewed the house, not when you made the offer, but now, when the bank has told you exactly what it will cost every month for the next 25 years.

If this is where you are, here is what you need to know.

What the Bank Approved and What It Means

Banks calculate how much you can borrow based on your income, your spending, and a stress test that assumes interest rates could rise. They work out the maximum they think you can handle.

This does not mean that maximum is what you should borrow.

The bank does not know you have a season ticket for the child that costs £400 a year. They do not know your car is on its last legs. They do not know you like to take two holidays rather than one. They are working from a theoretical budget, not your actual life.

When you look at that monthly figure, work backwards. Calculate what is left after your actual spending. If that number is under £500 a month of surplus, something will have to give eventually.

The Rate They Offered You

Most first-time buyers in the UK are offered a standard variable rate by default. This means your monthly payment can go up or down with the Bank of England base rate. Right now, standard variable rates in the UK average around 5.25%.

If your offer did not specify a fixed rate, you are probably on an SVR. This is worth checking before you sign. The average two-year fixed rate is currently around 4.5%. On a £200,000 mortgage over 25 years, moving from 5.25% to 4.5% saves roughly £85 a month, or £1,020 a year.

That is not a rounding error. That is a holiday.

The True Cost of Your Mortgage

A mortgage is not just the interest rate. It is the total you repay over the full term.

If you borrow £200,000 at 4.5% over 25 years, you will repay approximately £329,000. That is £129,000 in interest alone.

If you extend the term to 30 years to make the monthly payment feel more manageable, you will repay approximately £369,000. That is £40,000 more in interest for the comfort of paying £100 less per month.

Before you sign, ask the lender what the total repayable amount is over the full term. A lower monthly payment is not automatically a better deal.

Overpaying vs Investing

If you have money spare after the monthly mortgage payment, you might be wondering whether to overpay the mortgage or invest it.

The answer depends on your mortgage rate and your pension. If your mortgage rate is 5% and you are paying 5% guaranteed returns by overpaying, that is a reasonable decision. But your pension is invested in the same stock market that has historically returned around 7% per year over the long run. You are simultaneously paying off debt at 5% while your pension invests at 7%.

If you are in your late thirties or early forties and have not yet maximised your pension contributions, extra cash may be better directed there. The tax relief alone makes it one of the most efficient places to save.

Use a comparison: if you have £200 a month spare, calculate what overpaying your mortgage saves you in interest over 10 years. Then calculate what the same £200 a month in a stocks and shares ISA could be worth at 55 at 7% growth. The numbers will tell you which applies to your situation.

The One Thing to Do Before You Sign

Check whether your lender will allow overpayments without penalty. Most fixed-rate mortgages allow overpayments of up to 10% of the outstanding balance per year without a penalty. If you can overpay without penalty, you have flexibility to reduce the term without committing to a shorter term from day one.

Then, before you sign, calculate your actual monthly surplus. Not the bank is budget. Your actual life.

If that number feels tight, speak to a mortgage broker about a smaller loan. The bank said the maximum. You do not have to take it.