If we are looking to buy a home, whether to improve on the one we have or to buy one for the first time, then we will need a lump sum of money to help us out. If we are taking on a mortgage for the first time we will need to save up for a deposit and if we are moving home, we will need to pay the estate agent, solicitor, removal company and for lots of other bits and pieces. Therefore we will need money in order to do this. It can be tempting to borrow money in order to have the money available to do this. There are advantages and disadvantages of doing this and so it is well worth some thought.
Advantages of the loan
If you take out a loan it will mean that you will have the money that you need more quickly compared with waiting to save up for it. You will be able to build up your deposit quickly or have the money available to pay for the costs of moving home. It can be quick and convenient as well. You will not have to think about putting money aside each month to save up.
Disadvantages of the loan
Having a loan can make getting a mortgage difficult. When assessing you for a mortgage the lender will look at your credit record and see whether you have enough money available each month to cover the loan repayments. If they see these loan repayments coming out they may not allow you to have the mortgage. It will also have an impact on your credit rating which they will consider as well. The point of having a deposit is to show that you can save money regularly, which shows you have budgeting skills that you can use to put towards making your repayments on the mortgage. If you just borrow the money for the deposit then you will not show that you are capable of budgeting and so it may put lenders off completely.
If you are moving house then having a loan will not have such an impact. It is likely that you will be staying with the same mortgage provider and so there will be no reassessment of your financial status. However, if you are borrowing more money, due to moving to a more expensive property, then there may be an assessment. Then this loan could work against you. Of course, you could delay getting it out until the extension to your mortgage is approved but you will need to make sure that you will be able to afford to repay the mortgage, loan and cover all of your other costs. If you are moving to a larger property then you will have increased costs in other areas too such as insurance, tax, heating and maintenance.
Points to consider
As you can see there are a lot more disadvantages to advantages. It could be well worth taking the time to save up rather than taking out a loan with a company like Emu.co.uk so that you do not impact your credit record or your chances of getting a mortgage or increasing your current one. You also need to think about whether you can afford the repayments if you take a loan, which you will not have to worry about if you save up.
It can also be worth calculating the cost of a loan compared with saving up the money. Loans are expensive and so if you can borrow less or not borrow at all you will save a lot of money. Obviously very few of us could afford to save up to cover the cost of a full house, but the more we can save towards the deposit, the less we will have to borrow and the cheaper our mortgage will be.
Often when moving, people will add on the costs of moving to their mortgage and so they do not have to get a separate loan. This can feel like it is better as mortgage interest rates tend to be lower than loan rates. However, you repay a mortgage for a long time and so you will be being charged interest for a lot more months and so it could be cheaper to get a loan and repay that quickly, rather than borrow against the mortgage and repay it slowly. Again, it is worth doing the sums to work out what the cost difference is.
It may seem like a lot of hassle and you may not really want to wait and save up especially if you have to wait a few years. However, it can make a big difference to your future and the amount of money that you have available to spend then, so you may regret it if you do not wait and save up.Continue Reading