Mortgages – Know your limits!

For some individuals purchasing their first home is a blessing from heaven. What's more important than knowing you've made a purchase that ought to increase in valueover the years and provide a safe environment for your family to growup in. However there are dangers that many individuals neglect to consider before they choose to buy a house. Let’s list a few.

 

Bank of England interest rate raises

The most well-known and popular mortgage types are tracker and variable mortgages. With fixed interest rate mortgages things are generally safe if the bank of England puts interest rates up. However with tracker and variable if the bank of England does choose to raise interest rates then your monthlymortgagerepayments will increase in line with theinterest rate raise. Let’s see what could happen with a £200,000 mortgage if the rates increase.

Let’s say your interest rate is currently 3.5%, and this increases by 0.25% your mortgage payments will increase from £1,011 to £1,038 for a 25-year mortgage term. That is an additional £27 every month, or £331 every year. So it’s critical not to financially push yourself to your limits in case mortgage rates raise. This raise might only be 0.25% but it could also be 5% eventually once the economy has recovered fully. The bank of England base rate was 14.9% in October 1990!

 

Missing mortgage payments because of unfortunate circumstances

When you buy your new home and take out a mortgage you'll be responsible for making the repayments every month, on time every month. However most people don’t consider the many unfortunate events that can occur, for example, losing their jobs because of another recession or bad health. If you can’t make the mortgage payments every month because of one of those scenarios or the hundreds of others then the bank may be tolerant for a couple of missed payments however before long they'll want their money that is legitimately owed to them. Your home will in the end be repossessed and sold, likely at a value that is much less than its actual market value. Don’t forget the bank will add as many fees as they can get away with, they’re a business remember. Their sole aim is to take as much money from you as possible without breaking the law. In short, this could be the worst experience of your life. Consider the anxiety this will cause you, plus the impact on your family when the Santander contracted debt collectors come thumping on your door for your keys to your lovely home.

 

Impact on your credit and future borrowing power

The Impact on your credit and future borrowing power will be huge if your home is repossessed. It willmost likely destroy any credit rating you’ve built up over the years. Santander, HSBC, whoever you approach for loans or future mortgages will most likely turn you away. So please think carefully before you purchase that dream home, can you really afford it? If not your dream home may quickly become your nightmare.

Author's Note

For some individuals purchasing their first home is a blessing from heaven.