Risks involved with Mortgages

Caution
Before contemplating the idea of getting a mortgage, it’s important to familiarise yourself with the potential risks involved so you can decide whether it actually is currently the right step for you.

Mortgages notoriously have high risks and penalties if you fail keep up on top of them.

Interest Rates can and most likely will change

This will not affect your monthly payment if you’re with in the “fixed rate” period, which is typically 2 years. However, after the fixed period expires, you’ll be put onto your lender’s “standard variable rate” (SVR).

The SVR is typically a lot higher than the fixed rate, so be prepared for a jump in payments. Additionally, any change in interest rates will have impact on your monthly payments. If the UK base rate increases, then so will your mortgage payments.

Make sure you understand your Mortgage Policy

A lot of Mortgage borrowers don’t understand their policy properly. Be aware of ALL costs and foreseeable changes in your monthly payments. For example, after you escape the fixed rate period and start paying at a variable rate, your monthly will increase. Make sure you are aware of the change in price, and make sure you can afford the change.

Make sure you can afford your mortgage if your income falls.

You will still be liable to pay your monthly mortgage on time if you fall ill or lose your job. You need to think about whether you can keep up with those payments. It’s always best to put money aside in case you get yourself into this situation- these things are unpredictable.

There are also insurance policies you can get in place which can help in this situation. It’s always worth looking into.

Crashing market

If the value if your property drops, then you will still have to pay the amount you borrowed, so you could end up paying more than your property worth. Property crashes are some times unpredictable, but they happen.

Early Mortgage Repayment

This only applies to “repayment” Mortgages. If you have a large amount of money saved up and you want to pay off your Mortgage, be aware because some Mortgage lenders may apply penalties.

You may be charged for paying your debt off early. Sounds silly, right? But you need to remember that Mortgage lenders will lose out on money if you clear your debt early. So make sure you find out if there are any early repayment charges. Of course, not all lenders apply this charge.

Failing to make mortgage payments

If you fail to make your mortgage payments for long enough, your lender will be entitled to repossess your property and sell it.

Lenders generally have full control

This is where reading the terms and conditions of your policy carefully is vital. To protect themselves, lenders generally have a lot of control once they lend money to an applicant. They can penalise, change or even revoke your loan and ask for immediate redemption of the mortgage if for example, you default on your payments.

Getting the wrong type of mortgage

There are many types of mortgages available, and it can be overwhelming. It’s important you get the right type of mortgage for your property. Getting the assistance of a mortgage broker can be extremely beneficial to help this process easier.

For example, a lot of landlords get “residential” mortgages for a “buy-to-let” property, which is actually mortgage fraud. There are specialised mortgages for BTL properties, but some Landlords prefer residential mortgages because they’re generally cheaper than buy-to-let mortgages.

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