You will face many choices when taking out a mortgage and it is best to prepare as much as you can before hand. Below are a few mortgage questions you should consider before committing to one.
How much can I afford to pay each month?
It is essential that you only borrow the amount that you can comfortably pay back each month for the period of your mortgage. A mortgage is a long-term commitment and therefore you will be making monthly repayments for many years, depending on your circumstances.
When considering your monthly budget, allow a buffer for things like possible increases in your monthly mortgage repayments and uncontrollable events in future life. You do not want your budget too stretched as this could result in financial difficulties with knock-on consequences.
Lenders will not offer you an amount they think you cannot afford however it is ultimately up to you whether you are confident with paying the monthly repayment amounts.
Remember that your mortgage is secured against your property and if you fail to keep up the monthly repayments, the lender could repossess your home.
How much can I reasonably save for my deposit?
This will depend on your individual situation such as your current income and costs of day-to-day life. Remember that the more you can put down as a deposit, the better mortgage deals will be available to you.
It is worth noting the other associated costs with buying a new property such as legal fees, valuation fees and stamp duty.
Can someone guarantee my mortgage?
You can have someone guarantee your mortgage if needed. This means that you will be responsible for the monthly repayments however if you get behind on them, the guarantor has to pay. You would both be equally as liable for the debt.
Anyone considering to be a guarantor should seek their own independent legal advice so that they understand the commitment they are willing to undertake.
It is worth noting that not all lenders accept guarantors and those that do, impose restrictions to the lending.
Am I eligible for any government schemes?
There are different options for first time buyers to get on the property ladder.
Shared ownership:
If you earn less than £80,000 a year (outside London) you can buy a a share of a new or existing home from the council or housing association, typically at between 10% and 75% of it’s value. You then pay rent on the remainder, hence a smaller deposit is required. You also have the option to buy a bigger share in the property at a later date.
Help to buy ISA:
These are tax free savings accounts designed to help you save for a deposit. You can start with an initial sum of £1,200 and add £200 a month after that. The Government will then top up your savings by 25% upto a maximum bonus of £3,000, once £12,000 has been saved.
Lifetime ISA:
Aimed at 18 – 40 year olds, they offer the same 25% bonus as the Help to buy scheme, but there is a higher limit of £4,000. Those who save £4,000 get a tax free bonus of £1,000. The money can be put towards a deposit on a first home worth upto £450,000.
Are fixed monthly payments better than a lower interest rate?
This would be depend entirely on your individual circumstances.
Fixed rate mortgages will allows you to know exactly what you will be paying each month and will shelter you from any increases in interest rates.
You could however benefit more from a lower interest rate if you are confident that you could afford a possible increase in monthly payments.
Mortgage Wise do not advise on any type of ISA.
ISA’s investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers. Tax treatment varies according to individual circumstances and is subject to change.
You will incur a lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA.
By saving in a lifetime ISA instead of enrolling in, or contributing to an auto-enrolment pension scheme, occupational pension scheme, or personal pension scheme:
(i) you may lose the benefit of contributions from your employer (if any) to that scheme; and
(ii) your current and future entitlement to means tested benefits (if any) may be affected.
Your home may be repossessed if you do not keep up repayments on your mortgage.
