The property ladder isn’t an easy one to get onto. Once you have your first foot on it, there’s usually a way to start climbing, but that first foot is the hardest to place. When you’re looking to buy a home of your own for the first time, it feels like everything is an obstacle. Mistakes you made with credit years ago can come back and haunt you. You find yourself trying to explain transactions on your bank account from months ago, and you can’t really remember them. Your salary is questioned, your address history is pored over in detail – at times, it starts to feel more like you’re on a trial than you’re buying a house!
The sad truth is that almost half of all first-time buyers are rejected when they make their first mortgage application, which is a painful experience. Perhaps because of that, we have a tendency to jump on the first offer we receive. We’re so happy that someone’s willing to give us a mortgage that we don’t really stop to ask ourselves whether it’s the right mortgage deal for us. That can be an incredibly costly mistake both in the short and long term.
Ultimately, there’s no such thing as a perfect mortgage deal. Borrowing any large amount of money against a house is a gamble, because you can’t guarantee your circumstances over the next twenty to thirty years. Going into the gamble with your eyes closed is like playing a mobile slots game. Nobody can control the outcome of a mobile slots game – you simply put your money in, cross your fingers, and hope for a win. That’s fine for playing mobile slots on website like Late Casino, but not for repaying debt. You need to move the odds of this gamble into your favor, and you can do that by considering the following questions.
How quickly would you like to own the home?
It’s a common misconception that as soon as you have a mortgage and you’ve moved into a property, you own your home. You don’t, the bank does. If you don’t believe us, try not paying the mortgage for a few months and see what happens – you’ll quickly find that the bank reclaims their asset. Foreclosures and repossessions are on the increase, and you don’t want to become part of that statistic. To avoid it, you may be better off paying the mortgage off as quickly as possible. It’s tempting to keep your repayments low and take a 30-40 year term on the mortgage, but in doing so, you remain at risk of foreclosure for that entire period. If you can afford to do so, opt for a shorter term. As soon as it comes to an end, the risk has gone.
Are you going to stay there for years?
Moving into your first home is a big moment in your life, but note the description. ‘First home.’ For almost everybody, the first home you own will not be the home you spend your whole life in. You’re probably going to want to move out of it again at some point in the future – but when? If you’re a young couple with plans to start a family, this is a pertinent question. Do you think you’ll have a child – and therefore possibly need a larger home – within five years? If so, check the small print of your mortgage and ensure there isn’t an ‘early repayment charge’ listed. You might find that if you sell the home too quickly after buying it that you’re required to pay a fine to the lender. If it’s 10% to 15% of the balance – which isn’t unheard of – it might be enough to trap you in your home.
Do you want to make overpayments?
Let’s say you’ve chosen to go with a long term on your mortgage because you want to be cautious with your expenditure, but you still intend to pay the balance off early if you can. That sounds like a good plan, but that can also attract penalties. Your ability to make overpayments is something else you should discuss with your mortgage adviser. Some lenders will only allow you to overpay a certain amount each year without being penalized. Some may not allow you to do it at all. You could be trapped with the mortgage for the long term, whether you want it or not.
Is this the right thing to do right now?
We understand the desire to buy a home as quickly as possible. When there’s a deal on the table, and you have a burning desire to get it done, you might just decide to take it and worry about the consequences later. This isn’t always the best thing to do. If your credit history isn’t quite perfect, or your employment history leaves a little bit to be desired, that will be reflected in the interest rate you pay on your mortgage. The key question is whether either of those things will change in the next 6-12 months. If another six months earning your current salary would open up a better deal for you, or another year would see an old missed payment disappear off your credit report, it might be better to wait. Remember that you’ll be stuck with your interest rate for years after you agree to it. A difference of a couple of percentage points over that period of time could lead to you spending hundreds – if not thousands – of dollars more than you could be if you were patient.
In the end, a bad deal is usually worse than no deal at all. Don’t feel pressured into accepting a mortgage offer just because it’s available. Have an honest conversation with your financial adviser about what your mortgage goals are, and explain to them that you won’t accept anything that deviates too far from the plan. A mortgage is a life-changing, long term financial commitment, and if it’s wrong from the start, it can wreak havoc for both your finances and your peace of mind. Renting for a little while longer than you planned to might be an annoyance, but it’s better than signing up to a damaging contract. Use your head, not your heart!