Mortgage is the biggest financial commitment for most people around the world. Unless you are an investor or run a midsize to large business, you are unlikely to make any investment that is dearer than your mortgage.
While it is not considered to be a risky investment, there are risks associated with it. You would be making a down payment, which could be all your savings or a major chunk of it. You would be committing to repaying the mortgage, every month for fifteen, twenty, twenty-five or perhaps thirty years. That could be seen as a lifelong commitment. You can always walk out of the mortgage and that would mean you would be moving out of your home. That is why you should try to mitigate mortgage risk as much as you can.
- Never buy a property that is too costly for you. Many homebuyers think that they can manage to pay a mortgage that is 30% or more of their income, they think that they can cut corners and in any case their incomes would rise in the near or foreseeable future and that the amount paid as instalments wouldn’t pinch as much. Such approaches are unwise. Purchase a home that you can afford comfortably. If you do very well in the future and amass substantial wealth, you can always buy a much better or costlier home.
- Do not consider the exact mortgage payments as what you owe to the lender. While that would be the amount you pay for now, it may increase or decrease. Should the repayments reduce due to a cut in rates of interest, then you don’t need to worry. But what if the rates go up and you have to pay 5% or perhaps as much as 10% higher than what you pay right now? You must factor this in and see to it that your incomes conveniently allow for such a surge in financial liabilities.
- Repaying mortgage can become a daunting challenge and almost impossible if you lose your job, if you have a serious medical emergency in the family or if you are unable to work and earn a living. You can consider payment protection insurance; you can consider tenants in your home or you can have some other plan that would keep repaying your mortgage or settle it at once.
Speak to your YFG lending specialist to guide you along in calculating the best mortgage repayment amount for you based on your specific income and expenses.
