One big part of taking out a mortgage is the deposit. Most
lenders will want borrowers to put down a payment towards the cost of the home
and this is normally a percentage, perhaps 5% or 10% on average. It can be
tempting to therefore just save the minimum that you have to or only pay the
minimum and use anything else you have saved to pay for other things. However,
there are plenty of advantages of having a larger deposit and so it can be well
worth saving harder.
borrow less – the main reason for having a large deposit is that less money
will need to be borrowed when buying the home. Some people will use it as a way
to buy a larger home but this may not be sensible. By borrowing less money, it
will mean that you will be able to borrow less and therefore either have
smaller repayments or a shorter term for the mortgage and this will put you at
a really big financial advantage. The amount of interest that we pay in total
for mortgages is massive as we borrow so much and repay over such a long period
and so anything that will reduce this will have a big impact. It can be well
worth doing the calculations for yourself – you can find mortgage calculators
on many websites. You will be able to work out how much you will save over the
term of the mortgage if you make a larger deposit. This can help you to decide
whether saving more money is worth it and therefore whether saving harder is
worth it too.
- Buy a
better home – as an alternative you could use a bigger deposit to allow you
to buy a better home. As a deposit is a percentage of the sale price, having a
larger deposit can, in theory, allow you to buy a more expensive home. Of
course, it is not only the deposit that will determine how much money you can
borrow but also the income that will be coming in to the home which will
indicate how capable the household is at repaying the mortgage. It is a step in
the right direction of buying a more expensive home though and so this could
make it worthwhile.
extra money to use as savings – If you do save too much money then it can
be a good thing as if you pay down most of it as a deposit you will have some
left. You can put this into your savings account and you will have it as a
backup. This means that you will be able to use it if you are in the situation
where you need extra money. This could be to pay for costs of the move, such as
removal fees or redecoration or on a more long-term level to help you if you
are in a situation where you are finding mortgage repayments difficult. It
always feels good to know that you have some money behind you, just in case you
need it. You may therefore feel that this will be a goal that you will try as
hard as you can to stick to so that you have some savings ready to help you out
promote good habits for future– having to save hard before buying a home
can promote good habits for later in life. Making sure that you are careful
with money and that you have some savings behind you will give anyone some
confidence in their financial status and therefore can be a sensible thing to
do. You may have learned some things such as how to budget, where to find items
that are good value for money and how to make sure that every purchase you make
is necessary. These lessons can be used again in the future. You may decide to
always continue with them or to just remember then so that if you are in a
situation where you are struggling financially you can fall back on them.
So, there are a great number of good reasons why saving hard
before you get a mortgage is worth it. At the time, it can feel pretty
burdensome, when you have to go without things that you want, constantly think
about how much you are spending, checking prices and things like that. However,
what you can gain from doing this can be really useful. Not only can it help
you in the short term so that you can either get a smaller mortgage or get a
larger house but it could also help you to have more savings in the future.
Getting into these useful habits could also mean that you have a more
financially secure future which can be useful for everyone.
Buying a house and potentially taking on a mortgage can be a
big decision. It is worth thinking hard about it. Many of us decide a mortgage
is not for us or decide to rent a home without really thinking all of the
advantages and disadvantages through. It is worth giving both sides of the
argument a lot of thought before making your decision.
Advantages of home ownership
Many people like the idea of owning the home that they live in because they see it as a financial investment. This can be a bit of a mistaken idea but it is worth thinking it through. A true investment is where you get an income or high return on money that you invest. This would happen if you bought a second home and rented it out, for example. Buying your own home is not so much of an investment as you need to live in it and you do not pay yourself rent. You will save yourself the cost of rent if you compare it to renting form someone else though. The investment side is a bit hazy though as if you want to get back the money you paid into the house you have to sell it and that will leave you with nowhere to live. However, it could potentially be seen as an investment for your descendants as they may benefit form inheriting the house once you pass away. However, you may need to release the equity form the house to fund your retirement or to pay for care.
There are other advantages though which are not strictly
financial. If you rent a home, particularly a private rental then you will have
security with regards to being able to stay there as long as you wish. Your
landlord has every right to serve you notice if they want to sell the house or whatever.
This can leave you with a constant concern that you may need to be prepared to
move at any time. You will also have less control over what you do with the
house if you rent – you will not be able to do major renovations and may not
even be able to decide when to paint it. Being able to expand your home if you
want to stay but to have a bigger home or make improvements is something you
will get when you are a home owner. You will also get a lot more freedom on how
you decorate it and even down to what you can plant in the garden.
Once you own your home you can also rent parts of it out
(although you will need to consult with your lender if you have a mortgage and
insurance company). You could run a bed and breakfast, rent out a spare room,
or rent space like attic space or garage or even a driveway. This could provide
some income for you and help you to make use of spaces that otherwise might be
Disadvantages of home ownership
With a home comes responsibility. If anything goes wrong with the house it is up to you to pay for it. Insurance may cover some costs but you will be responsible for boiler services, insurance costs, updates, renovation and decorating. This can actually be quite expensive. Depending on how reasonable your rent was, it can be more expensive to own a home. However, the major influence on the cost will be the mortgage initially, but once this is paid off, the home costs will be a lot cheaper.
The mortgage is probably one of the most important parts of
the decision. This is because you will be taking it on for up to thirty years
and so you will be committing to a lot of payments. You will need to be sure
that you will be able to cover those payments every month and this is a tricky
thing to commit to. It is very hard to predict the future but you will know
what your employment prospects are like and that should help. There is always
an uncertainty when it come to interest rates though and this is also something
well worth thinking about. If the interest rates go down then that would make
loan repayments easier but if they go up then it could make them very much more
difficult. It is therefore worth being prepared for this which could happen at
any time throughout the mortgage repayment period. Taking on a mortgage is a
big responsibility – ii is therefore really important to make sure that you are
ready and prepared for that and that you have a plan in place in case money
gets tight or if interest rates go up so that you can still manage and will not
risk your home being repossessed by your lender.