The financial implications of a mortgage

28th November 2018

When the time comes and you are about to embark on securing the biggest loan of your life, its vital you understand what your options are and how your decisions can impact your financial position. We’ve raised a few of the initial questions you need to consider, but to understand all the financial implications its best to speak with a mortgage adviser.

Does mortgage count as debt?

Well, essentially a mortgage is a loan, so in the short answer, yes. However, there is such a thing as a good debt and a bad debt. Very few people could afford to buy a home without additional finance in the format of a loan. This is common knowledge and therefore a home loan is viewed as a good debt. A mortgage is taken out to help you buy and own your own property, which is seen as an asset that increases in value over time. Therefore, your loan is much like an investment that will hopefully provide dividends for you in the future.

Does a mortgage improve my credit score?

Your credit score and history will be checked when you apply for a mortgage. But what happens to your credit score once you secure a mortgage loan?

Your credit score is based on a number of factors, the most important being your ability to pay what you owe on time. So, if you meet your regular monthly repayments for your mortgage loan without missing any, your credit score will not be affected. Over time, it will demonstrate you are responsible in repaying debts and therefore it will have a positive impact on your credit score. If you default on the mortgage loan, this will show on your credit report, and not in a good way. The most important loan to pay on time, every time is your mortgage!

So does mortgage show on credit report?

Yes. Any credit accounts you hold, including that of a home loan, will show up on your credit report. However, if you meet your regular repayments and don’t fall behind, it should have a positive effect.

Does mortgage amount include the deposit?

Most people think of their property purchase in two sections – the deposit and the remaining amount loaned by the mortgage lender to complete the purchase. Those two elements should be viewed as separate entities.

Let’s suppose you want to buy a property worth £400,000. If you have enough cash to provide a 10% deposit, i.e. £40,000, you will then seek a home advance for the remaining 90%, or £360,000. Your deposit is taken as part-payment towards the property you have bought, with the loan providing the rest. The lender pays that amount to meet the cost of the property, while you agree to pay that amount back, plus interest, over an agreed term.

Therefore, the mortgage amount is not inclusive of the deposit. The loan-to-value rate (LTV) is expressed as a percentage of the cost of the property, amounting to the loan amount you will take out. In this case, it would be 90% LTV for £360,000.

Before taking out a mortgage make sure you have discussed your options with a Mortgage Broker. It’s important you are getting the best deal and that you are not over stretching yourself unnecessarily to keep up with more demanding payments. A Gordon Blair mortgage broker has extensive knowledge of the industry and will always find you the best and most affordable mortgage deal. Speak to a mortgage adviser today to discuss your options on 020 8715 7267