How much can you afford?
"Make sure you can afford the mortgage" is an obvious statement. However, do remember you that you are entering a long term contract and if you find that you cannot maintain the payments you could lose your property.When thinking about how much you can afford, remember that it is not just the mortgage that you need to make allowances for; but let us start with that.
There are four main things that affect what your monthly mortgage payment will be. These are:
- how much you want to borrow
- how long you want to borrow it for (the term)
- How you are going to repay it (e.g. Interest Only or Repayment Mortgage)
- the interest rate you will be charged.
All these factors can vary, so use our Mortgage Calculator to work out what your repayments might be. Simply enter the information it asks, and see what a particular mortgage will cost you each month.
If you choose a variable rate mortgage (including a Discounted Rate or Tracker Rate), be prepared for your monthly payments to go up when interest rates rise and it is sensible to stress test yourself by seeing now if you could afford, say, a 1% or 2% increase in the interest rate.
The same is true if you choose a low, initial fixed rate or a discounted rate mortgage.
At the end of the special rate period, you will be paying the lenders standard variable rate which will be higher than the discounted rate and may be higher than the fixed rate which you pay at the start of your mortgage. The standard variable rate moves up and down as the Bank of England rate changes and it may be different to the current standard variable rate when you come to the end of your special deal. Even though many borrowers move their mortgage to another lender who will offer them a new fixed or discounted rate, when the time comes it may not be suitable for you to move lenders. Either way you cannot depend on obtaining a cheaper rate in the future so work out what your mortgage repayments would be if your rate became the lenders current standard variable rate, it is a sensible figure to work to and will allow for the increased cost when your interest-rate deal comes to an end.
What about the other costs?
You have now worked out your monthly mortgage cost and allowed for some rate changes. Now think about the other bills that you will pay, such as Council Tax, utilities (gas, electricity, water), home insurance, mortgage protection (lnsurance in case you lose your job or cannot work because of illness), life asssurance and maintenance and service charges if you are buying a leasehold property.
Once you have these costs, work out your on going commitments and regular costs, such as, personal pensions or savings plans, travel, costs of your car and its insurance, any loans or credit card payments, food, gym membership.
The more money you have left after all these costs have been taken into account the more affordable your planned mortgage will be and this is the figure a lender will take into consideration when assessing whether they think you will be able to afford the mortgage.
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