Getting a mortgage is a really big decision. This is because you are taking on a big responsibility. You are not only buying a home which is very expensive, but you will be taking on, probably, the biggest loan you ever have. It is therefore very wise to take some time to consider the decision and the timing of it. You want to be sure that you will be able to make the repayments and therefore you may be worried about increasing interest rates making it too expensive. This may make you feel that you should wait and it is certainly something that you should consider in light of other things too.
Are interest rates likely to fall soon?
Changes in interest rate can happen quite often, perhaps every few months or they can stay the same for many years. It is therefore quite difficult to predict what might happen to interest rate during the course of a loan which will last for decades. Increases in interest rate can be a worry though and you may wonder whether you will be able to afford the loan repayments if the rates go up and this is understandable. However, worrying about changes that might happen in the near future may not be worth while in light of the term of the loan. This is because they could be very small compared to changes that might happen right across the loan term. However, if you feel that it could have an impact then it could be worth thinking hard about whether it is the right time for a mortgage or not.
Will changes be significant considering loan term?
It is therefore wise to think about whether you think the changes in interest rate will be significant. It could be that you expect interest rates to rise steadily and then stay high. Although these rises can be scary, if they then stop you will actually gain by getting a mortgage when the rates are lower as at least you will have some repayments at this lower rate. It is wise though, to think about whether you will be able to afford these increases in interest rate.
Can I afford rises in interest rate?
In order to work out what you can afford, it is worth looking at your monthly household finances and seeing what you tend to have available each month. Consider how easy it will be to pay the mortgage at the current rates and how much it would need to go up before you would tend to start to struggle to repay. It is important to do these calculations anyway as you will want to be sure that it is a sensible idea to take on the mortgage. You need to be aware of how much you would be expected to pay and whether you will find this easy or hard. Then consider what might happen if those payments rise. If this happens a long way into the future, it can be easy to think that you will be able to afford it then as you will have had a rise in salary. However, it is important to consider that in the future children may come along and they will be expensive. Also jobs have very little security these days and so you will need to consider whether you have a career that will enable you to easily find a new job, should you need one.
Would fixing the rate help?
One useful thing that could help you is to fix the mortgage rates. Most lenders offer a fixed rate as well as a variable rate. This will allow you to go a certain time period where your rate of interest will not change and this will mean that the amount that you have to repay will not change as well. Although this means that if the rate goes down you will not be able to benefit from a reduction in the rate, it means that if the rate goes up you will be protected. This can be great for anyone who feels that they would really struggle if rates went up. However, it is worth noting that you may be tied in to a deal like this meaning that you may not be able to move to another mortgage with this lender or another one or maybe even not sell your home without having to pay a large penalty. So, make sure that you know whether you are tied in and consider the consequences of this before signing up.
Have a back up plan
It is wise to have a think about how you might cope if the rates do go up. Think about what you can do to raise more money, perhaps by earning more, spending less or both. It is good to think about this so that you can make the changes that are necessary when you need to.