For those of us looking to get on the property ladder, a mortgage loan is the key to home ownership. Since the financial crash of 2007, which was largely caused by the so-called US ‘housing bubble’, there followed an extended period of uncertainty around the UK housing market. More recently, the UK economy has experienced recovery and slowly, confidence in the UK housing market has increased. With the improving faith in housing, banks have begun to expand the range of mortgages available to customers. There are now over 1000 mortgage options available within the buy-to-let category alone.
Among all these attractive new options are many affordable mortgages. However, some of these products could actually cost more money in the long run. Just because a person qualifies for a mortgage, this does not mean that they should not shop for the best mortgage product available. It is important to note that cheap mortgage products can actually end up costing people the most amount of money.
Here are several different ways in which these mortgage products can end up costing customers more.
Interest Rate
The interest rate on a mortgage is one of the best indicators of how expensive it will be to borrow the money. The less money is put down on a mortgage, the higher the interest rate will usually be. There are many loan products today that allow people to put low or no money down. However, you will be surprised that loan payments will actually end up being higher. Trying to find a mortgage that’s right for you can be a daunting prospect, as can be calculating repayments. Fortunately, there are some handy tools online that allow you to easily calculate mortgage interest rates.
Payment Length
Many people like mortgages because they spread out the payment length of a home over a long period of time. However, spreading out debt payments will lead to you spending more money in the long term. In the beginning of a mortgage, very little of the payment actually goes towards paying down the principal on the debt. This means that most of the money simply goes to paying the interest on the loan. Many people disregard this as not being very important, however it is beneficial to start paying down the principal on the mortgage as soon as possible. This will allow people to get out of debt sooner.
Conclusion
For the average person, getting a mortgage from the bank remains the only realistic way to be able to afford to buy a home. However, it is important to understand the different financial implications of taking out a mortgage. There are many people who are looking for the cheapest and easiest mortgage possible. These mortgage products may be easier to manage in the short term, but over the long term they are difficult to pay back. Understanding what banks, building societies, and other financial institutions have to offer is key to ensuring that you are able to get a deal that is right for you and your mortgage appropriately meets your needs.