Mortgage payments – a look at cost & choices

Unless you have some hefty financial backing, the only way of buying a home is going to be by getting a mortgage. Let’s take a quick look at the process from start to finish, looking at the impact your choices can have on the monthly cost of buying your home.

Step 1: Choose your property

At the start of your quest, you have to find the right home for you. Not just right for your needs but also right for your budget.

There are so many variables when it comes to property. House or flat? How many bedrooms? How good a condition? How ‘posh’ an area? How close to local facilities?

Compromise on one of those criteria and you could really win out on another – if you’re good at fixing things, for example, you might find a large house in a good area for a decent price, as long as you’re prepared to put the work into fixing it up.

Just remember: in general, the cheaper the property (as a multiple of the deposit you can put down), the more likely you are to find a mortgage deal you’re happy with.

Step 2: Choose your type of mortgage

Fixed or variable? It depends on what you’re looking for. If there’s not much leeway in your monthly finances, you’re probably better off with a fixed-rate mortgage. Whatever happens to central bank rates, your payments won’t change.

If you could afford an increase in your payments, however, that means you’re more free to look into the variable-rate mortgages that don’t deliver that kind of stability, but may offer a lower rate to start with. Depending on how long the bank rate stays low, this could really pay off – but you’d have to be prepared for an increase.

Whatever you’re looking for, it’s vital you make sure your mortgage is affordable, as your home could be repossessed if you can’t keep up with your payments.

Step 3: Choose your term

Next, you need to think about the length of your mortgage term. Basically, a shorter term means larger monthly payments but a smaller overall cost, while a longer term will cost you less each month but more in the long run (as the mortgage will have longer to accrue interest).

Many people choose to start with a longer mortgage term, then move to a shorter one – if they can afford it – when it’s time to remortgage. If it’s done right, this can be a way to get a foot on the property ladder.

Wondering about the cost?

Finding a house and a mortgage. It’s a big job – and it’s vital you put enough work into it, making sure you get a mortgage deal that you can realistically afford.

Using a mortgage calculator can give you a good idea of how much you’d pay under different conditions – i.e. depending on:

  • The mortgage amount
  • The length of the repayment term
  • The interest rate you’re offered.