Have you been dreaming of buying your own property? Having somewhere where you can lock the door and truly feel safe, secure and at home? If you have been thinking about homeownership for a long time, you have probably looked into the price of houses near where you currently live, or perhaps closer to where you work. It’s a lot of money, but with a mortgage, it can be achievable. However, with mortgage rates having gone through the roof recently, there are fewer cheaper options out there. This means you’ll pay more over the term of your mortgage. Let’s look at the ins and outs of the true cost of a house.
The Deposit
One of the biggest and perhaps most time-consuming parts of first owning a house is pulling together the deposit. Even if you get a mortgage, you will be expected to put down a deposit of your own money. This could be anywhere from 5% to 20% of the amount you spend on the house. It varies with each mortgage company and the offers you are eligible for.
Take into consideration that the average price of a property in the UK in June 2023 was £288,000, even 10% of that is just shy of £29,000. Even a 5% deposit would be almost £15,000! If you are able to put down more as a deposit, it will likely open up better deals for you. For every percentage point you don’t need to borrow, that’s money you don’t need to pay back, as well as the interest! Now you can see why this can be a painstakingly slow part of the house-buying process.
Mortgage Rates
Those mortgage rates we discussed also matter. Let’s say you need to borrow £200,000.
If you are paying it back over 25 years and your interest rate is 2.5%, the total cost you will pay back is almost £270k, with almost £900 in monthly payments.
For the same amount, a 4% interest rate over 25 years would be a total amount of just over £315k, whilst your monthly payments would be £1050 payments.
The difference in this example is huge. More than £45k over the 25 year term and an extra £150 per month. If you were able to find a lower interest rate, lower the term of the mortgage or borrow less, you would pay less in the long run.
Do The Calculations
When you are doing these calculations, it’s so important to use a mortgage calculator. This can show you in black and white, exactly what you are going to do with your finances. It will also do the calculations and adjustments for you when you charge the figures in certain boxes.
Decide that you’ll go for a 35 year mortgage rather than 25, it will give you the figures you need. The same when looking at different interest rates. Use this helpful online tool to sort out what works for you and find the best possible mortgage for buying your property.
Final Thoughts
There are lots of other financial things to consider when it comes to buying a house. Moving costs, council tax, home insurance, utility bills and any immediate work you want to do on your property are just five examples. Consider the true cost of buying and owning a home and then organise your finances accordingly to make that happen for you.
