Mortgages – The Hidden Dangers

For many people buying their first house is a dream come true. What’s greater than knowing you’ve made an investment that should grow in value over time and provide a secure environment for your family to grow up in. However there are hidden dangers that many people fail to recognise before they decide to purchase a house. Let’s list a few below.

Missing payments due to unforeseen circumstances

Once you purchase your house and take out a mortgage you’ll be responsible for making regular on time monthly mortgage payments. However many people don’t think about the worst case scenarios such as  losing their jobs due to another recession or losing their job due to bad health. If you fail to make these payments the bank may be lenient for a few payments but pretty quickly they’ll want their money that’s rightfully owed to them. Your house will eventually be repossessed and auctioned off, probably at a value of much less than it’s true current market value and let’s not mention the fees they’ll charge you for this pleasure.  In short, you really don’t want this. Consider the stress and effect on your health or family this may have when the Santander hired debt collectors come knocking on your door for your house keys.

Increase in interest rates

The most popular three types of repayment mortgages are fixed, tracker and variable. With fixed things are relatively safe if bank of England interest rates go up. However with tracker and variable if the bank of England does decide to raise interest rates then your monthly mortgage payments will also increase in line with the interest rate raise. Let’s look at an example for a £200,000 mortgage.

If we take an average mortgage rate of 3.5%, and this rises by 0.25% your payments will increase from £1,011 to £1,038 for a 25-year repayment mortgage. That’s an extra £27 per month, or £331 per year. So it’s important not to stretch yourself to your maximum financial capability now only to struggle when interest rates raise 0.25% or even 5%. The bank of England base rate was 14.9% in October 1990!

Long term effects

The long term effects of missing your mortgage payments and worst case scenario having your home repossessed is it will ruin your credit rating and this will be extremely difficult to repair. Santander, HSBC, whoever you approach will probably refuse you a mortgage. So please think twice before you stretch yourself to your maximum financial capability before you take out a mortgage on that dream home because it may quickly become a nightmare if not properly planned out.

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