A mortgage is usually the biggest expense you will face during your lifetime, which is why you want to make sure you have the most affordable deal and also the most cost effective. As the mortgage is tied to your home, you will also want to make sure you can cope with any increases in repayments, or loss of income.
Working out your budget
Before applying for a mortgage, plan your household budget, including all expenses like food, travel to work, utility bills and other expenditure. Allow a little extra, as all items often increase as time goes on, although your salary may not increase at the same rate. You could also do a comparison to make sure that you have all the cheapest rates for insurance, utilities and other bills, as costs vary widely. Try to be realistic when you calculate a budget, and include a holiday and the cost of car repairs and occasional clothes, rather than realise that you can’t afford any extras.
Getting a good mortgage deal
When you apply for your mortgage, seek the advice of a professional so that you know you are applying for the most suitable deal within your budget. However, when any fixed rate deals come to an end, or the variable rate increases, look around to see if any better deals are available.
Your circumstances may affect the type of mortgage product you apply for. For instance, if your income isn’t steady or you have very little spare cash, you may prefer a fixed rate deal for at least two years. When you compare mortgage products, take into account any extra charges that will inflate the cost of a mortgage. You may even incur early repayment fees if you leave a deal early.
Dealing with a reduction in income or increased mortgage repayments
It is possible that your income may drop or your monthly repayments may increase, and this can make it much harder to afford the payments. If you have a variable rate deal, try to switch to a fixed rate deal with a lower rate of interest. You may want to plan for a loss of earnings by taking out insurance against unemployment, sickness or accidents.
When you initially budget for a mortgage, allow for an interest rate increase of 2% so that you know you have some spare cash each month. You could save that amount each month so you have some money to rely on. Careful budgeting and professional advice will ensure you are in control of your mortgage.