QUESTION: Mortgage: how to choose the mortgage term and avoid overpaying?

Choosing the optimal mortgage term is a crucial step that directly affects the amount of your overpayment and financial stability for many years to come. To find the balance between the monthly payment and the total cost of the loan, you need to carefully calculate both the baseline scenario and a possible stress scenario. The baseline scenario is based on your current income and expenses, allowing you to comfortably service the loan without compromising your usual lifestyle.

However, life is unpredictable, so financial experts strongly recommend setting aside a safety cushion of 10 to 20 percent of your monthly income for unforeseen circumstances, such as a temporary job loss or health issues. Decide in advance which specific expenses or mandatory payments you will cut first if your budget temporarily dips. Such a pragmatic approach will save you from panic and help avoid delays on your credit obligations.

Remember that taking out a mortgage for the maximum term with the intention of paying more and paying off the debt early is the most flexible strategy. It combines low debt burden in the baseline scenario and minimal overpayment in the scenario when you have the opportunity to make large lump-sum payments. Avoid extremes: do not overestimate your financial expectations, always leave room for a full life, and track your financial progress using small checkpoints once a quarter or year.