How much can you borrow?

You’ll need to find out how much you can borrow before making an offer on a property. Make sure you’re realistic in what you can comfortably borrow and that you can afford to make the payments before you take the mortgage on. Some lenders will work this out before you find a property – this is called an approval or decision in principle. This will help you know the maximum offer you can make on a property and will also speed up the mortgage process.

Lenders usually base their calculations on your guaranteed earnings such as basic pay, but some will consider part or all of any regular overtime or bonuses. They’ll want to see proof of your income.

HOW LONG WILL MY MORTGAGE LAST?

This is known as the mortgage term. Mortgages usually have a term of between 5 and 25 years but can be upto 40 years. A mortgage should normally be for the shortest term you can afford as this keeps the overall cost down. A longer than necessary term means you’ll pay more interest. You should also consider the impact of future interest rate increases, and how these may affect your ability to maintain your monthly payments. It’s advisable that your mortgage term ends before you retire, as it’s unlikely your mortgage repayments will be affordable on a retirement income.

SELECTING YOUR MORTGAGE

Your adviser will go through your needs and preferences and use these to filter out any mortgage products that don’t meet your requirements. This will reduce the amount of products your adviser will consider for you.

CONSOLIDATING DEBTS

This isn’t suitable for everyone and you’ll need to carefully consider this with your adviser. If you have existing debts, it may be possible for you to add these to your mortgage rather than continue with your existing repayment arrangements. When you add loans to your mortgage, it’s important to understand the risks:

• Adding short-term loans to your mortgage means you’ll repay them over a longer term. Unsecured loans are generally paid back over a shorter term than mortgage loans. While the interest rate on your mortgage may be lower than you pay on your loans, by adding them to your mortgage you’re likely to pay more over time. It may not be appropriate to consolidate small or short-term debts.
• Your existing debts might not be secured on your property. By adding them to your mortgage they become secured on your property.