How Much Do You Need To Save For A Mortgage?
There are pros and cons to mortgages, with the obvious pro being that you can buy a house without saving a truly outrageous amount of money. Mortgage loans make homes more accessible to the masses, though they are still loans at the end of the day.
Most of us will need a mortgage to buy a house, which begs the question: how much do you need to save? For starters, we can’t give a specific figure as it depends on the value of the property you’re looking at. What we can do is provide some knowledge to help you figure out a ballpark figure for how much you may need to save. So, let’s get into it!
The 5-15% Rule
As a general rule, mortgage deposits should cover anywhere between 5 to 15% of the total purchase price of your property. Most people aim for 15%, though there are various buying schemes that provide 95% mortgages, meaning you would only need to save 5%. Whether or not you choose to do this depends on a few factors – some schemes are only for first-time buyers and paying less means you repay more.
One good practice is to look at properties you’re interested in and work out how much a mortgage will cost depending on your deposit. For instance, if you’re looking to buy a £300,000 house, a 5% mortgage would mean you only save £15,000, a 10% mortgage would mean savings of £30,000 while a 15% would force you to save £45,000.
Figuring Out How Much You Can Repay
Another thing to take into account is your monthly mortgage repayments. Put simply, how much can you afford to pay each month?
There are tools like the mortgage affordability calculator that’ll help you figure this out. You input your financial information like wages and expenses, then it shows you what you might be able to borrow and how much you’ll have to pay each month. You can then use the slider to adjust the monthly payments based on the mortgage term.
As a good rule, you should be able to afford monthly repayments that are around the same as your current rent payments, possibly a bit higher. If you’re getting a mortgage with someone else, take both of your incomes into account. Sometimes it’s better to to get a mortgage for a longer term because it stretches the payments out over a larger period, meaning you spend less every month.
Speak With A Financial Advisor
We sould be crystal clear that none of what we’ve said is financial advice! We’re not qualified to give advice like this, but the tips should give you an insight into how much you need to save for a mortgage. Check the value of properties in your area, decide how large of a deposit you want to put down, and then see how much you’ll need to repay monthly. For professional help with a mortgage application, speak to a qualified financial advisor. They’ll get you in the perfect position to learn how much money you need to save and how long it may take for you to afford your mortgage.
*This is a collaborative post.
