For most people, buying a house is the biggest and most expensive purchase they’ll make in life. Consequently, the majority of people need to take out a mortgage to afford to buy a home. However, committing to a mortgage is a serious decision and could have wide-ranging implications for your overall financial health - so you need to consider your options carefully.
While buying a home is generally considered by most financial advisers to be a sound investment, in real terms, a mortgage is just an interchangeable word for a large loan, so you must bear in mind that whatever you borrow will have to be paid back – albeit over a considerably longer period than most other types of borrowing.
If you’re in any doubt as to which mortgage is right for you, you should consult with a skilled adviser like Azembel.com to get the most up-to-date and impartial advice. Nonetheless, there is some background research you can do to get a better idea of your borrowing requirements.
Determining the best mortgage product for you
Before choosing which mortgage is right for you, you should ask yourself some basic questions to work out what’s best for your particular circumstances:
How much can I afford to borrow? Mortgage lenders are in the business of making money, so you may find you’re offered more than you reasonably need or can afford to borrow. You must take into account all your existing outgoings before deciding on how much to take (e.g. any credit card debts, previous loans or hire purchase agreements you might already have). It’s not uncommon for people to end up “house poor”, where all their money is going to repaying their mortgage, leaving little left over for other things.
How much of a deposit can I afford to make? As a rule, it’s always better to put down as large a deposit as possible on your mortgage. Not only will a deposit reduce the amount of borrowing you need to make, it can also bring the benefit of preferential rates, normally calculated by the loan-to-value ratio.
What are mortgage fees? It’s not uncommon for some mortgages to come packaged with costly set-up fees or other associated charges. Always check the total price you’ll be expected to pay back by referencing the Annual Percentage Rate of Charge (APRC) and adding any additional charges for the loan.
Should I take a repayment or interest-only mortgage? In a repayment mortgage, a percentage of your payment goes towards paying off the initial amount you borrowed as well as the interest. As the debt decreases and the interest reduces, more of the money goes towards paying off the actual mortgage. In an interest-only mortgage, you only pay off the interest on the original loan, meaning the payments are usually smaller. Interest-only mortgages are normally only offered if you can prove you have another way of paying back the loan. As a result, first-time buyers are unlikely to be approved for an interest-only mortgage.
Should I take a fixed or variable rate mortgage? With a fixed-rate mortgage, your payments are fixed for the duration of the loan, irrespective of any interest rate changes. In a variable rate loan, the payments will fluctuate in line with the current interest rates of the country where you took out the loan.
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