Can I afford to buy? Budgeting to cover the cost of a mortgage

POSTED: 23rd July 2014
IN: Personal Guides

Mortgages can be a costly affair and saving up for the deposit alone can take many years.

undefinedIt’s important to keep track of your finances to make sure that you will be able to make the monthly repayments that are part and parcel of taking out a mortgage.

While owning your own home can give you a sense of pride and independence like nothing else, it also comes with overwhelming responsibility and if you haven’t already, you’ll need to set some time aside for budgeting.

To secure a mortgage in the first place, you’ll need to make it clear to your lender that you can afford to make the repayments each month. It can be difficult to plan many years ahead and knowing how financially stable you’re going to be in 5-years-time isn’t always a dead-cert. So how can you make sure that you’re prepared when getting a mortgage?

Plan and budget

It’s not only the mortgage repayments that you need to factor into your budget, you’ll need to make sure that you can pay other bills and ensure that other outgoings are covered as well. Write down everything that you spend each month, including contents insurance, phone bills, food and travel expenses; don’t forget to include any other non-essentials such as cigarettes, clothes and takeaways. Also consider what you may spend at particular times of the year; birthday presents, summer holidays and Christmas festivities will all burn holes in your pockets.

To find out approximately how much your monthly repayments would be, there are various mortgage calculators online which can be ideal for testing different interest rates and variable deposits.

For a straightforward indication of how much you may have to pay back each month, type your details into
Aldermore’s mortgage repayment calculator. Simply type in the loan amount along with the interest rate and term, and the calculator will work out the mortgage repayments for you.

While mortgage repayment calculators can ease your workload by suggesting how much you may be paying back each month, for a more tailored mortgage based on your circumstances, contact your lender for a specific quote based on your detailed information.

Surprise! Repayment increases can happen

It’s important that you do your research so that you find the right mortgage for you, with conditions that you can meet. If you’re buying your first property, then there are first time buyer mortgage options available.

If you decide to get a variable rate mortgage, then your monthly repayments could increase if interest rates go up. It’s important that you factor this into your budget so that you’re not caught off guard when you
suddenly find yourself short of money.

If you’re looking at mortgage deals with four per cent rates now, consider how much the repayments could increase should interest rates rise to say six or seven per cent. If such an increase doesn’t give you much leeway in terms of budget, are there any cuts elsewhere that you can make to soften the blow?

Fixed rate mortgages can be an ideal option if you don’t want to run the risk of being caught off-guard by rising interest rates. But bear in mind that if interest rates decrease while you’re mid-way through your fixed rate mortgage deal, you could lose out on significant savings.

If you’re at all unsure which to opt for, financial advisors can be a great option for gaining some expert
knowledge on the mortgage topic. The most exciting part of moving into a new home is making it your own,
so financial assistance can help you to work your way through the complicated parts with minimum fuss.

Could you cope with a drop in income?

Even when you’ve made preparations for repayment increases when getting a mortgage, you’ll also need to consider what you might do if you ever face a wage decrease. If you were to be made redundant, would you have enough money to tide yourself over until you get a new source of income?

An emergency savings account can come in handy for situations such as this, but there are also various employment and redundancy insurance options out there to cover your back.

Also, look into what you are entitled to as an employee at your current place of work. Are you eligible for sick pay or a redundancy package?

When planning the next exciting stage in your life – buying and moving into your first home – preparing for the worst can seem a little negative, but it’s important that you do so to avoid any unexpected debts.

Where can you afford to live?

It’s common knowledge that similar properties in different areas can have very different price tags. If you can’t afford to make repayments on a home in your dream town, perhaps there is another town nearby with cheaper properties of a similar size or style?

Additional responsibilities

When you rent a property, more often than not your landlord is responsible for fixing and maintaining the contents, but when you own your own home, you are the person responsible for all of your possessions. Therefore, can you afford to pay for maintenance and repairs if for example the washing machine breaks, or your sofa needs replacing?

The best way to prepare for these unexpected occurrences is to save whatever you can each month ready for a rainy day. This emergency fund could really help you out in times of need.

Getting a mortgage

Once you’ve got all the planning out of the way and have done what you can to make sure that you can afford to pay back what you borrow, you need to convince mortgage providers that you are a responsible borrower.

There are various ways of doing this. You may be required to present payslips with proof of income, or if you’re looking for a self-employed mortgage, account records may be required instead.

Your credit rating will also be checked to ensure that you don’t spend more than you can afford. However, Aldermore consider all applications on a case by case basis and so even if you don’t have a perfect credit history or have struggled in the past with your finances, they may still be able to help you.

To find out how much your monthly repayments would be, take a look at the Aldermore
mortgage calculator which will do all the maths for you, leaving you a bit more time to focus on making your new home your own.

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