I Wish I Knew This Before Getting a Mortgage For a House
One of the biggest pain points for people right now is their mortgages as interest rates rise 😳.
As I write, the Bank of England raised the base rate of interest by 0.5% to 5%, sending worry and anxiety across homes with mortgages.
They’ve raised interest rates because CPI inflation has remained high at 8.7% (vs 6% in France, 6.3% in Germany, 7.1% across the whole of the EU and 2.7% in the US).
Digging deeper, what they call Core inflation (removing energy, food, alcohol and tobacco) rose higher than expected to 7.1%.
This core inflation rose because more people are buying used cars 🚗 and recreational goods 🚴♀️.
On top of that, services inflation is rising due to rising wages.
Leading to the Bank of England (BoE) being deeply concerned about rising prices and wages together.
This one rise of 0.5% alone (the 13th increase since December 2021) means that if you had a £250k mortgage, you now need to find an extra £71 a month.
A 2-year fixed rate has crossed 6% and millions of people are worried about remortgaging their homes.
In addition, first-time buyers feel totally priced out and unsure if they should be getting onto the property market now or not.
Here is what I wish I knew before taking out a mortgage to buy a house.
👉🏽 Learning these things helped us to pay off our mortgage in 7 years instead of 25 years.
I WISH I KNEW THIS BEFORE TAKING A MORTGAGE
Here are the 7 things that I wish I knew:
1. IMPACT OF 25-YEAR vs 35-YEAR MORTGAGE 🤑
A lot of people get a longer term on their mortgage for affordability, which I get. BUT…
Did you know that if you borrow say, £300,000 at 5% interest and opted for a 35-year mortgage instead of a 25-year mortgage on a repayment basis, you pay over £100,000 more interest for those extra 10 years? 🤯
i.e. £226k vs £328k in just interest!
Think very carefully before making this move.
Although it provides temporary ease with payments, it is ultimately the banks that are laughing.
2. NO CAP MORTGAGES 🔥
This is for people who want to become mortgage free sooner not later.
There is an assumption that everyone has a 10% overpayment cap on their mortgages.
👉🏽 You can get mortgages without a cap at all. This removes the fear around an Early Repayment Charge.
e.g. we've used Nationwide, for example. (I don't get paid to mention them).
This was a game changer for us and helped us with paying off our 25-year mortgage in 7 years.
3. SOME BANKS ARE EASIER THAN OTHERS 💕
If you're getting a new mortgage or remortgage, some banks are way easier than others.
For example, everyone I know has found using Halifax pretty easy to use. (I don't get paid to mention them)
So think carefully about what bank you choose to get a mortgage or remortgage with.
👉🏽 Knowing this gives you a better chance of success with getting a mortgage.
4. YOU CAN GET A “CONSENT TO LET” 📝
If you have a property now and want to move and let the existing property out, you can get a consent to let.
A lot of people don’t know this and sell their properties in order to move.
Getting a consent to let allows you to keep the property without getting a Buy-To-Let mortgage.
This way, you have a property that generates you an income whilst also going up in value over the long term.
5. USING A BROKER IS WORTH IT 🙌🏾
Get one that doesn't charge upfront and has access to the full market of mortgages.
They get paid when you have completed the mortgage successfully, and so it is a win-win.
There is also nothing wrong with paying a broker upfront, except you could lose your money if they don’t find you a suitable mortgage.
👉🏽 I value the relationship part of the dealings with a broker because they have insights that you won't easily find online 😀
Plus, you get a great mortgage deal e.g. no cap deals.
6. YOU CAN OVERPAY AT INTERVALS 🎯
Overpaying a mortgage is one of the most effective ways of paying a mortgage early.
Here are the 3 intervals that you can overpay a mortgage:
- The gap between when your current deal ends and your new deal starts.
- The 10% you get when you start a new mortgage deal.
- When the calendar year starts every January and the 10% resets
7. WHAT YOU BORROW MATTERS 💸
Too many people are caught up in the emotions about buying their “dream house” and overlook that all that borrowing needs to be paid back.
👉🏽 If you overborrow, you could easily add another 10 – 15 years to your working life before you could ever retire
Think carefully about where you choose to live and hence, how much you borrow.
This is why we moved out of London so that we can borrow less than we could afford.
8. BEWARE OF INTEREST-ONLY 🧐
An easy solution if you're struggling with your mortgage is to go from a repayment mortgage to interest-only.
This option is usually only available to people who have a good Loan-To-Value and who earn a high enough income.
One aspect of going interest only that a lot of people don't talk about is that you get accustomed to paying just the interest on your residential mortgage and then have lifestyle creep.
We know someone who is 60 years old now and nearing retirement with an interest-only mortgage.
They'd gotten so used to the lower mortgage amount that they then started enjoying life for years.
Now, the only way he can possibly pay off their mortgage is sadly if his mum passes away and he inherits money. This is literally what he is sadly waiting for.
This is not to say that you shouldn't go interest-only on your residential mortgage. What we're saying is, think very carefully before doing it 😀.
Mortgages are hard work 😅 and create a lot of stress than is necessary.
However, do stay encouraged as there is a lot you can do today for mortgage freedom one day.
Stay positive and practical and remember that no amount of worry will improve your life or your mortgage situation.
Instead, have faith that things will improve for you, take action and manage what is under your control.
What to read next about getting a mortgage:
What to watch next on things to do with your money:
👉🏽 What changes or sacrifices are you currently making in order to afford your mortgage monthly? Comment below 😀
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