Home Property How to Choose the Best Time to Take Out a Mortgage

How to Choose the Best Time to Take Out a Mortgage

by James McGregor

Owning your own home is something that many people aspire to. Having a house that you do not have to pay rent for and knowing that it is yours to be able to do what you want with, can be a great feeling. However, most people have to borrow money to buy a home and borrowing is a big risk. You will have to ensure that you can make the repayments when required and for a house, you will normally commit for at least 25 years, which is a long time. There are things that you can do to reduce the risk of borrowing though and getting these things organised will allow you to decide when it is the right time for you to take out a mortgage. 

Save up the Deposit

Most mortgages require a deposit. This is a lump sum of money that the buyer will need to put towards the cost of the house. It is normally a percentage of the cost of the house and is often a significant sum of money. The more that you save up, the more options you will have with regards to borrowing and the less you will need to borrow. This means that it is worth taking some time to save up a significant chunk of money. Consider what size of home you want and look around at the prices and this will give you an idea of what you need to save. Often you will need 10% of the asking price as a deposit. It can be better to have even more than this if you can. It is hard to save up, but if you have a higher deposit, the lender will be happier to offer you a mortgage and if you pay off more of the house, you borrow less and your monthly repayments will be lower. 

Have a Well-Paid Job

Lenders will look at your income and expenditure to decide whether they are happy to give you a mortgage. This means that you will not only need a job that pays you a decent amount of money but you will need to make sure that your spending is not massively high. They want to make sure that they can trust you to repay the mortgage each month and if they think that your earnings are too low or your outgoing too high, they will not want to take the risk of lending to you. This means that you need to make sure that you have a job that pays well. This is obviously not always easy, but it will not only help you to secure the loan, but also help you to save up the deposit more quickly and so it is worth focussing on. Having a secure job is also good, both for you and the lender. You ideally want a permanent job, rather than being on probation or working as a temp or contractor as this means that you have a higher guarantee of an income. It will be better for you as you will know you will be getting in the money to make those mortgage repayments as well as being favoured by lenders.

Know the Area you are Buying in

It is a good idea to get to know the area that you are buying your home in before you take out a mortgage. While you are saving for your deposit it can be wise to keep a track of things. Look at the house prices in the area and track how they are changing and look at the local news as well to follow events and incidents. It can be a good idea to try to find out what the area is like and how the prices of houses there compare to other houses nearby. This might influence a mortgage provider too and it is just useful for you to do this as you will be living here and will want to be sure it is a good area to live. It is good to think about your future plans too and whether that area will work, such as whether you plan to work in a different area of the country or county and whether you plan on having a family or already have one and need to consider school, colleges, universities etc. It is good to plan for the future because moving house is costly, so staying where you are, once you buy can be worthwhile. 

Interest Rates

Interest rates will have a big influence on the cost of your mortgage repayments. When you take out a loan, the lender will charge you interest and this will change according to the base rate set by the Bank of England. Although the rates will be set by the lender, if the base rates rise, the lender will normally increase their rates too, unless you have a fixed rate.  Fixed rates tend to be fairly short term on a mortgage, maybe from one to five years so the base rate will influence everyone. However, interest rates are unpredictable. They are very low at the moment and when they are low, it is easy to think that there is only one way for them to change and that is to rise. They have stayed at record low rates for a long time though and no one would have predicted that ten years ago. This means that interest rates may not be the best way to judge whether it is the right time for you to take out a mortgage. 

So, timing a mortgage can be tricky. The main thing is to make sure that you have a good deposit saved up, have taken the time to research the best place to buy a home and that you have a job that gives you an income that will enable you to repay the mortgage. Do not leave things too late though as a lender will not be keen to let someone have a mortgage if they are close to retirement age as the chances of them being able to make those repayments when they have retired are low. 

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