Preparing your finances for buying a home starts with getting to grips with your budget – but there’s another important step to factor in which may not be so obvious. Darren Polson explains why protection for your mortgage should be on your list of priorities
Buying a new home is arguably one of the most exciting times for any of us, from beginning your search for that dream property to getting the keys and decorating.
Whether you are a first-time buyer or moving home, there’s no doubt it is a huge financial decision and it can also be a stressful process.
But where do you start, especially if you’re doing it for the first time?
It may seem obvious but the best place to begin is look at your budget – most people will need a mortgage so it’s vital to look at how much you think can afford and how much you might be able to borrow.
What might your repayments be, and how will you manage once you take into account your other bills?
It’s a good idea to establish this information before you start your search for a new home, and with thousands of mortgage deals on the market, an independent mortgage broker will be invaluable.
They can help calculate what might be affordable and investigate a range of mortgages from lenders across the whole market to try and find one that meets your needs.
You’ll need to provide some basic information on your current circumstances and typically you will then receive a decision in principle or an agreement in principle.
This is an initial promise from a lender that they will lend you a certain amount, subject to a number of other factors. This gives you an indication as to how much you might be able to offer for a property.
So, you’ve decided you want to buy, you’ve started to work out your finances, and in all likelihood you’ve probably seen some homes that would be perfect. Job done? Not quite.
What protection do you need for your mortgage?
One area that potentially might not be front of mind when you decide to buy is that of protection.
Protection can come in many forms, from life assurance and critical illness to income protection, and there are options on the market which cover almost every eventuality.
Protection might seem like an unnecessary add on (and not very exciting) but life is complicated, and we have no way of knowing what it has in store for us.
Insurance and protection exist for a very good reason, but they are not there to suddenly increase or grow your wealth but to simply maintain what you have in times of hardship, and provide some security.
Be in no doubt, protection services and products are a crucial part of financial planning, especially for those with mortgage and family commitments.
For those who lose their job or their regular source of income, it can be devastating. And it must be said that the welfare safety net is flimsy at best.
No one who owns or rents their home would choose not to have home insurance. If it makes sense that you protect your home and its contents, why wouldn’t you protect yourself and your family?
Turning back to the subject of obtaining a mortgage, the amount you pay every month will likely be your biggest outgoing. But your biggest outgoing keeps a roof over your head. And if, for whatever reason you no longer had a regular income, what then?
How much does mortgage protection cost?
Protection policies do have a cost but there are many different types of policies available and a wide range of reputable firms who offer protection.
There are also a range of factors which can affect your premiums, such as age – broadly speaking, the younger you are, the lower the cost.
Some occupations may also be classed as a higher risk and therefore result in higher premiums.
Your health can also have an impact on the cost and many of us will be aware that being a smoker or having higher levels of alcohol consumption can mean higher costs for life cover.
But what may be less well known is that your height and weight – essentially your body mass index (BMI) – can be a major factor in how much you pay in premiums, or even whether you can obtain life assurance.
Not everyone will need every type of insurance or protection but it can be a complex area to navigate. Again, a professional mortgage broker can be a vital source of help in finding what’s right for you.
Getting the right advice now can protect you and your family against the challenges which life throws at us.
Darren Polson is head of mortgage operations at Aberdein Considine
