For most of us buying a house is the single most costly exercise we’ll ever face. It’s usually a very long term commitment which often stretches right up until we retire and sometime beyond.
When it comes to mortgages, doing your homework and reading lots of small print really can help you make better informed decisions. One of the most obvious approaches is to determine what you can afford, or are prepared to afford. There are lots of online mortgage calculators which will illustrate what your monthly repayments will be for a particular amount borrowed at a particular rate of interest.
Mortgage lenders will often use varying formula based on your earnings to determine how much they will lend. One of the favorite methods is to multiply your salary by three.
Lenders will also take into account the size of deposit you have against the property value often referred to as Loan to Value(LTV). In the early years your deposit basically acts as security should you default on repayments. Lenders are also cautious about property values falling in the short term. Currently if you can gather a good deposit you stand to gain from better interest rates. Homeowners who have seen their homes increase in value look set to get the best deals if they are re-mortgaging.
The small print will always state that ‘interest rates can go up as well as down’. This point should never be ignored. Although we have enjoyed historically low rates for some time now, borrowers should appreciate that they will rise at some stage. Again the online calculators can help you model differing outcomes for various rates of interest. Remember if your mortgage is over 25 years, a lot is likely to change over that period of time. It’s also likely that you’ll move once or twice, increasing the amount borrowed and perhaps extending the mortgage term.
Do your research. Use the internet and search for deals through the glut of comparison and money advice websites. Look at fixed rates, against variable and all the options in-between. If nothing else you’ll get a feel for interest rates and upfront costs for your circumstances. Don’t forget to use more traditional methods as well, such as a financial advisor or mortgage broker. Once you understand the options and costs, you should be better placed to know when you have stumbled across a good deal.
Keep in mind your budget. If an advisor says he’ll lend you X, ask yourself do you need or want that much? Remember you’ll also want do some of the other things you enjoy in life, so don’t stretch yourself to the absolute limit.
If you have the promise of a good mortgage then you can at last go house hunting. Now is the time to get the best deal you can. Every little bit you can save on the purchase price will reduce your monthly payments over the whole term of the mortgage. Don’t neglect solicitors, stamp duty (if applicable), estate agents (if you are selling) and removals firms or man with a van, as none of these come for free. Apart from stamp duty it’s worth ringing round for deals and pushing everyone for the best possible price. The various charges will add up and you’ll want to avoid having to borrow more just to cover them.
Got a Question? Call Robert J Russell 972-292-8967