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Risks of a mortgage


Risks of a mortgage
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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin10 Dec 2019
    

You want to move out of your house, and you’re looking at one particular house, and you’re just about to get a mortgage. But have you considered it will be beneficial for yourself financially?

This is due to the fact that many aspiring homeowners, eager to move out of their parents’ house, do take mortgages, but they often find themselves at a financial crossroads, each leading them to a worse outcome.

Through this page, you and I will go through the possible risks you, the homeowner, may face, and solutions will also be given, in order to go past these hurdles. YOU MUST KEEP IN MIND THAT TAKING A MORTGAGE IN THE FIRST PLACE WILL BE ONE OF YOUR BIGGEST DECISIONS FINANCIALLY!

Before we go ahead with the risks, we must remember the basics of what a mortgage actually is.

What is a Mortgage?

A mortgage is commonly known as a legal agreement in which a bank or building society that lends money, with added interest, for the homeowner taking the title of the property (the debtor’s property).

So the first question you should ask yourself is if you’re able to afford the mortgage?

And it isn’t that you can pay some weeks and others you can’t, you should be able to conclude that you’re able to pay payments fully on time.

Let’s say you’re able to make these payments on time, now consider your standards of living, so are you able to pay for necessities such as water bills, electricity, and food etc?  If these factors are hard to control financially, you should reconsider if you’re able to take the mortgage.

Consider these factors when choosing how much money you are able to borrow:

-Your financial situation now
-Your financial situation in the future
-How long you plan to own a home, have a mortgage
-Extra money you want to spend eg buying a car etc
-Interest rates
-The cost of owning a home
-How much your home may increase or decrease in value over time
-The chance for higher mortgage payments
-The risks of a drop in your income
 

So if we broaden our thinking, all these stem from one factor, your income and the stability of it. This means if you are getting constant amounts, so you are able to make the suitable payments at the suitable time.

However, there are factors which can increase your expenses immensely, these vary from starting a family, business problems and of course losing your job.

If your income does fall, it can seriously affect your spending and can affect the amounts you usually pay for the mortgage itself.

Credit History

Another factor associated with the risks of mortgages are to do with credit history.  Your credit history detects your worthiness of credit and if you are able to get the mortgage. Credit checks are often carried out by lenders to check your history of credit, and they are the sole deciders if you can get the mortgage. However, if you do abuse these checks it can act negatively towards you and your credit, and decrease the likelihood of lenders to lend money to you.

Mortgage contracts

So you read through the page, and you’re here. This is once you have the contract, or are about to get it. These mortgage contracts are usually very complicated and easy to make mistakes on. One piece of advice I can be sure to give is read everything properly, this includes the terms of conditions, as you must understand them. Also if you do find yourself stuck at stages, don’t be worried and ask the broker questions and seek advice (legal advice) for additional support, but do so before signing the contract.

You still cannot pay the mortgage….

Many homeowners face this problem, so don’t be worried that you are the only one who cannot pay mortgages, or unable to pay on time, and here we will go through some consequences you may face:

-If paid late, you can face charges

-Not making these payments can heavily damage your credit score

-If not paid, house can be sold by the lender through power of sale/or can become owner through foreclosure

Now once you have understood the risks, you are now looking for solutions, and these are limited but can be very useful if executed correctly.

-Refinance or modify the loan—this means you will get a new loan to replace current one, this option is never easy but can work

-Extend loan term—if you have a longer loan term, this works with interest rates and can actually reduce the costs of the payments you make monthly.

However this can be negative due to you having the chance to pay more for cost of home with refinancing, which is useful in the short term rather than the long term.

By reading this you are either satisfied, or still have doubts. If so, please contact us, Revolution Finance Brokers, and we will be happy to help you in the problems displayed above.

Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.