Picking the right mortgage is a difficult decision that will impact your financial health for years to come. It is easy to get overwhelmed and not decide based on facts or rush into the wrong choice.
You need to be certain on your budget and unwilling to budge. Try and aim for lower than your top limit as you never know when you might need extra money fast.
Here at Farmers Bank, we have compiled a list of all the necessary criteria to help you make the right decision.
How Much Can You Borrow?
There is no absolute rule, but lenders usually will give 4 to 5 times around an individual income or 3 to 4 times your joint income if you are borrowing with someone else. Every lender has different criteria and they will consider a variety of factors.
If you already have a lot of debt, multiple credit card loans, or monetary factors like these, your mortgage may be capped lower because of it.
You also need to consider how much you are willing to pay per month as large payments will get you the house you love – but also keep you trapped in it. This will eat up all your funds and stop you from other purchases like holidays or cars.
The bigger the deposit, the less the fee, and the better rate you are entitled to. You need to consider the loan-to-value rate that will let you see the percentage yours will be.
Repayment or Interest Only?
A repayment mortgage allows you to pay interest and the loan itself every month. You will pay more interest at the start, but it will work away at the loan until the whole thing is paid off.
This is the preference for many people as you only must budget the one payment instead of interest and debt. However, you can choose to just pay off the interest if you have other funds.
Lenders are happy to let you choose this loan if you have savings, investments, or assets and they are unlikely to allow a first term lender to take one out. If you are looking to rent the property out, then you will find many buy-to-let options available.
Fixed or Variable Rate?
Fixed rate mortgages allow you to keep the same monthly payment for the duration of the deal. Regardless of interest rates falling or rising, you will pay the same.
A variable rate will allow it to go up and down – either to your benefit or detriment. Seeing as they do have the potential of falling, they remain a popular choice.