Mortgages Worth More Than Your Home/Supersize Mortgages

A number of factors have resulted in home buyers having no choice but to borrow over and above what their house price is worth.

Soaring house prices and recent increases in interest rates have meant potential home buyers are being left with minimum cash to invest into a new home and in turn nothing to spend on furnishings and renovation. As more first time home buyers are desperate to get onto the property ladder, they feel they are left with no other option but to go down the route of borrowing 100% mortgage or even 125% mortgages.

Due to these reasons many financial institutions are now offering mortgages of equal value to your home, and often mortgages worth more than the purchase price of your property.

Before committing to what will probably be the largest debt in your life, first time buyers especially are strongly advised to think care fully before agreeing to these supersized mortgages. Though they may seem like a good idea at the time, some thought needs to go in to some of factors that may be of concern after committing to such a mortgage.

By putting a deposit on a mortgage, even if it’s a small one of 5% for example can make all the difference on monthly payments. In most cases, banks and building societies will charge higher interest rates if you do not have any deposit to put down, making your monthly mortgage payments much higher. So if at all possible, try to get some deposit together, even if it means borrowing short term from family or friends.

Some thing to consider is the rate in which house prices are increasing (or perhaps not). This may be of concern to recent homebuyers looking to take out 100% or 125% mortgages. With the housing market not growing as rapidly as it has done in previous years, home owners could be in position where even in a few years time, they may still have a mortgage debt that is higher than what the house is worth. This means that there will be no positive equity in the house, so when the current mortgage deal finishes, you may yet again have to pay higher premiums to remortgage.

Those who borrow more than the property is worth will have negative equity from day one. If house prices don’t rise as much as they have in recent years, then as a homeowner in the eventuality of selling your house, you will be responsible for funding the difference in the borrowings.

With the uncertainty of the current housing market, it is very worthwhile thinking considerably prior to committing to a mortgage that is worth more than your home.

Please visit Mortgages UK for more information.