What are the pros and cons of a mortgage?
Mortgages have various pros and cons and considering them properly will ensure you make the right decisions when deciding if to get a mortgage or not.
The pros of a mortgage
Some of the pros of a mortgage include:
Mortgages allow you to buy homes and have a place you can call home without having to pay all at once. Even if you have the full sales price, mortgages may present an alternative to utilizing all your capital at once.
Mortgages allow you to invest in property through things such as the buy to let mortgages. Without these mortgages, you would have had to buy an investment property outright in cash. This is a significant advantage of mortgages.
Mortgages allow you to borrow in a more costs effective manner when considering other long term borrowing options for home purchases. If you were to take a loan to borrow the same amount of money you may find that the APRs is much higher.
Mortgages allow you to choose how long you want to repay your mortgage. This is a great advantage of mortgages as it means you can affect the size of your monthly mortgage repayments and ensure they are affordable for you.
A good advantage of mortgages is that they are relatively straightforward to pay as you simply make a monthly repayment every month.
Another advantage of mortgages is that they can be very flexible. This means you can overpay on them or redeem them but you have to watch out for any terms your mortgage agreement may have which may have overpayment limits or early repayment charges.
Mortgages may allow you to earn an income through buy to let properties.
Mortgages also allow you to take advantage of any government home buying scheme. Without mortgages, most of these government home buying schemes will be useless.
Some of these schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA- gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
You may also be able to use a host of mortgages with the help of your family.
They are a certain type of mortgage known as a family springboard mortgage, they include mortgages from lenders such as the Barclays family springboard mortgage, the lloyds lend a hand mortgage or the post office family link mortgage.
Cons of a mortgage
As mortgages have some advantages, they also have some disadvantages.
Some of the disadvantages of mortgages include
With a mortgage, as with many other credit products. You will end up paying more than you borrowed.
Another disadvantage of mortgages is that some mortgages may be very restrictive and not allow you to do much. These are less flexible mortgages.
With a mortgage, there is also the real risk that you could lose your home through a home reposession
Mortgages are also debts and this means you will owe that money till you are able to pay it up in full. If you find you are unable to pay your mortgage as you have lost your job etc you may be able to get help such as a mortgage overpayment holiday or the support for mortgage interest offered by the Government.
Mortgages can be very expensive and have a lot of high application fees based on the type of mortgage you are after. This is a disadvantage of mortgages.
Mortgages can put you in debt through something known as negative equity. This is when the amount you owe on your mortgage is more than the value of your home.
There are many pros and cons of mortgages that we could covet above as mortgages are a wide topic and there are several different types of mortgages that will have various advantages and disadvantages.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.