Tuesday, 27 August 2013

Navigating the Mortgage Minefield

At the moment we are facing some tough financial times in the U.K. but one of the silver linings to this cloud is that mortgages are now at their most affordable for 14 years. This is great news for people wanting to get on the property ladder - and for those who already have a mortgage and who are looking to re-mortgage to get a better deal.

For most people a buying a house is probably the most money they will ever spend and very few people will be able to buy outright so they need to take out a mortgage loan. I took out my first mortgage 12 years ago and it really was the best investment I ever made. However you need to think carefully about choosing your mortgage so here are my top 3 tips for things to consider:

1. Make sure it is affordable

Since the banking crisis financial institutions have been much more cautious with how much they will lend which I personally think is a good thing. When you are working out a mortgage you need to have a good think about your monthly outgoings and how much you can actually afford to pay. Think about what you would do in a crisis such as loosing a job - would you have enough savings to pay the mortgage for a few months until you found new work? Also if the interest rates were suddenly to rise would you still be able to pay the mortgage easily?

Although it is tempting to try and get as much money as possible you also need to be sensible and make sure you can cover yourself in the event of unforeseen circumstances. I went for a smaller house but with the security of knowing that I could easily cover my mortgage.

2. Consider a flexible mortgage

A mortgage is a massive commitment and you don't want to take on a loan that is too inflexible. Some mortgages have early payment penalties and some don't allow you to overpay. Personally I found being able to overpay each month a real bonus when I chose my mortgage. It's a great way to reduce the term of your mortgage and means that you end up paying off more capital and less interest.

You might also want a mortgage that allows you payment "holidays". These can be particularly important if you are planning on having children as it means that you could afford to take a longer maternity leave or even work part time while your children are still young. It's always useful to look online to compare the different type of mortgage that are available and sites such as This well known supermarket bank can offer some really good information and tips.

3. Have a back up plan

If possible you never want to be in a position where you are unable to pay your mortgage as not only could you end up loosing your house but you may also find that it affects your credit record negatively. Therefore it is a good idea to make sure you have a contingency plan should you find yourself in financial difficulty. Having some savings in the bank is always a good idea or you if you have more than one room you could look into taking in a lodger to help pay the bills.

Overpaying the mortgage whilst you do have extra money is also a good idea as it means that you are effectively in credit with the mortgage company. Therefore you will be able to reduce payments if you need too.

It's always good to be prepared and being so will give you a nice sense of security!

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