We can take for granted that for 99 per cent of all people, getting onto the property ladder is the first step towards wealth acquisition and upward mobility. To take this step, most of us will have to approach a lending institution to borrow the huge sum of money needed. It helps to have a good deposit, but if you’re like most people there’s just never enough money to save a decent amount every month, so you have to build it up little by little.
The good news is that the government has developed programmes and schemes to help people who would want to realise the dream of homeownership, but struggle with affordability and lump sum deposits.
Financial institutions such as lenders, building societies and banks have extended themselves as well, doing what they can to guide first-time buyers through the process and offering a variety of different types of mortgages to suit different needs and budgets. So it doesn’t matter whether you’re a first-time home buyer or a property veteran, there’s you’ll be sure to find a mortgage just up your street.
Let’s take a closer look at mortgages, specifically the pros and cons.
One of the most important mortgage decisions you’ll make is the length of the repayment period. Typically people take out a mortgage over a period of 25 to 30 years. The longer the period the more affordable the monthly payments but the more you’ll pay in the long run. An advantage of shorter periods is that while your monthly payments are higher, you will pay considerably less in interest and you will own your home outright much more quickly.
One of the greatest advantages of a mortgage is that it’s a cost-effective means of borrowing capital that will form the basis of your wealth acquisition because, unlike a car, property increases in value over time. Mortgages typically have lower interest rates compared to any other form of borrowing, because the surety attached to your loan is your property with its tendency towards appreciation of value.
Finally, a mortgage in good standing reflects well on your credit rating and improves your credit score. A good credit score enables a good interest rate on other credit products, like cars or credit cards. Your tax liability is reduced and income tax deductions are available to you if you’re a mortgage holder.
As with all loans, you pay back more than the amount you initially borrowed and when you’re dealing with hundreds of thousands of pounds, that adds up to a whole lot more – sometimes nearly double the price.
You will also be carrying that heavy debt for a long period of time. If, at any stage, you fall on hard times and can’t keep up with payments, you could lose your home.
There are far more advantages than disadvantages to a mortgage, which is fortunate because very few of us would be able to buy a house without one. Luckily there are now several options for you to choose and many mortgage providers give you the option to refinance or change the terms of your mortgage as your financial situation improves (or worsens). The really good news is that the appreciation in your home’s value means that no matter what your mortgage, you will (in all likelihood) make a decent profit when the time comes to sell.
If you need help navigating the property market as either a buyer or seller, don’t hesitate to contact the experts at Tepilo, a clicks and mortar estate agency.
Photo credit: Green for sale sign via Flicker (License)