Advantages And Disadvantages Of A Mortgage For Homeowners

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For the vast majority of house hunters, it’s almost impossible to afford a home without a mortgage. The privilege of rounding up hundreds of thousands of pounds together to slam down as a lump sum is reserved for those lucky few.

Modern day homeowners have to scrape together the funds just to slam a deposit down on the house you’re after. The rest of the money needed is typically borrowed from a bank or building society. The good thing is that there are hundreds of lenders showcasing a vast array of different mortgage types. Whether you’re buying your first home, remortgaging and moving up the property ladder, there is a suitable home loan out there for you.

Most of the mortgages nowadays are only offered on a repayment basis which means you can repay part of the loan and the interest every month. At the end of the term, which is usually between 25 and 30 years, your mortgage debt will have been fully repaid.

Let’s find out for the majority of us the good and bad points of a mortgage.

Advantages of a mortgage

It makes a house affordable

Buying a home is most likely the biggest investment you’ll buy into in your life, and a mortgage will be your largest debt. But because you can spread the repayment costs over so many years, the amount you pay back each month is manageable and affordable.

When opting for a mortgage, most people choose the 25 year arrangement. Nowadays, due to people living longer and the increase in retirement age, 30 year mortgages are becoming more common. The longer your term, the less you’ll pay back each month, but on the other hand you’re saddled up for 30 years in the house.

Cost effective

Interest rates tend to be lower than any other form of borrowing because the loan is secured against your house. This means the bank has the security that if it all goes wrong financially and you can’t repay the loan, they will use the property as a form of paying it off. It helps to get the advice you need from estate agents in Barkingside, for example, or wherever you live. They can give you the information, as well as the do’s and don’ts when choosing the mortgage option.

Disadvantages of a mortgage

You’ll pay back more than you borrowed

This is perhaps one of the most obvious, and off-putting bad sides to a mortgage. You’re carrying an enormous amount of debt over a long period of time, and with interest fees on the repayments, a person who borrowed £160,000 over a 25-year term would repay £280,000 overall. That’s assuming that the rate of interest averages 5% over the 25-year term.

Beware of fees

Not only do the interest costs mount up, but the fees can also blindsight you. There will be set up costs each time you take out a new mortgage, and these vary significantly but some are as high as £2,000. You’ll also incur costs with legal work and the hidden ‘penalty fees’ if you wish to opt out of your term.

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