Non-essential mortgages - are they worth it?
With banks and building societies throwing money at buyers in the years before the crash and the Bank of England keeping interest rates low ever since, many mortgage holders have experienced a prolonged period of benevolent conditions, especially those with significant amounts paid off.
That said, mortgage payments are still a burden and most homeowners rejoice the day their mortgage is fully paid off. But others find themselves lured back into debt by the benefits of a mortgage on a property they own outright.
Benefits of a mortgage
The obvious advantage of arranging a non-essential mortgage is that it allows you to realise the value of your home without having to sell it and reinvest it in property elsewhere. With that money nestling in your account, you can buy a holiday home, pay for your children or grandchildren’s education, or invest it in a way that covers the cost of repaying your mortgage and leaves you with a healthy monthly profit.
Perhaps you are seeking a new home. You don’t have to sell your existing one to finance the purchase and move. A buy-to-let mortgage will release the value of your current property to enable you to purchase elsewhere, and with record rents at the moment – and no real sign of relief for tenants – you should be able to generate enough in monthly rent to keep up with payments and generate a nice profit. Banks are courting Landlord customers, and buy-to-let mortgages are self-sustaining in their nature, allowing you to generate income to pay off the loan.
People looking at taking on a non-essential mortgage may well have bought their property when prices were relatively manageable. Nowadays property values mean the size of the debt stands to be very large. The biggest risk comes with the inability to keep up with repayments, which can lead to repossession. With non-essential mortgages more likely to be considered by older people, the questions to consider are income and health. Will you get enough income from employment and other sources to stay on top of payments, and are you likely to suffer health issues that jeopardise that?
If you suffered a stroke or were diagnosed with cancer or another critical illness, your financial burden will increase while your income-earning capacity reduces. Loss of earnings and the cost of treatment and care could impede your ability to pay off your mortgage. In the worst case scenario, your family might not be able to keep up payments if you were to die. These are considerations for all of us but there are ways around it. Term life insurance is a good way of making sure your family’s financial position is not endangered, for more information, click here. In a similar vein, critical illness insurance like that found at www.criticalillness.org.uk pays out when you are diagnosed, allowing you to deal with the extra financial strain and you can get mortgage life insurance, which pays off your mortgage lender if you die, at sites like www.mortgagelifeinsurance.org.uk.