What are the pros and cons of having a mortgage?
Most of us can’t buy a home without taking out a mortgage, but while they are a useful financial tool for moving home, there are some downsides to consider too.
Key takeaways
Mortgages allow you to spread the cost of a property purchase over a number of years
From first-time buyers to second property owners, there are a huge range of mortgage available to suit all different types of buyers and properties
If you can’t pay back a mortgage, you risk your home being repossessed
Buying a home is usually the biggest financial decision of our lives – and for most of us that means getting a mortgage. Mortgages can provide relatively low cost, long-term borrowing, but with such large sums involved, it’s critical to find a deal that’s right for you.
The advantages of a mortgage
Here are some advantages of having a mortgage:
Advantages of a mortgage
Makes owning a home possible
Most people don’t have the money to buy a home outright and mortgages make the dream of homeownership attainable for millions by spreading the cost of a property over many years.
This allows potential buyers to enjoy the benefits of having their own home without needing to save up the full purchase price upfront. Even though you are making monthly payments with a mortgage, this is towards your own home, which you will eventually own.
Flexibility and choice
There are many different types of mortgages available, so you should be able to find one to suit your situation and personal preferences. These include fixed-rate deals or variable rates and the opportunity to have a longer mortgage term to keep repayments lower.
There are also specific mortgages for first-time buyers, landlords, and even interest only mortgages, for those who want to just pay the interest on a mortgage, and the full amount at a later date.
Long-term stability
For many, mortgages provide a sense of stability that renting cannot offer. If you have a fixed mortgage deal, for example, you will know exactly how much you will be required to pay each month for the duration of the deal.
Living in your home with a mortgage also takes away the worry and unpredictability of increases to your rent or having to move out of a property without much notice.
Government support
The government has introduced a number of schemes in recent years under its Help to Buy banner to help first-time buyers in particular get onto the property ladder. While Help To Buy came to an end in March 2023, the government’s 95% mortgage guarantee scheme remains an option for those with a small deposit.
There’s also the Lifetime ISA which gives a £1,000 bonus (per tax year) for every £4,000 saved. The money must be used towards a first home or a retirement pot though and there are restrictions on the type of property you buy.
Disadvantages of a mortgage
There are also some disadvantages to having a mortgage too, including:
Disadvantages to having a mortgage
Pay back more than you borrow
It's important to remember that with a mortgage, you'll be paying back the principal amount plus interest over time, which means the total amount repaid will exceed the amount borrowed.
Fees and additional costs
It’s not just the interest rate you need to think about with a mortgage, you also need to factor in any mortgage fees – such as arrangement fees, valuation fees, and conveyancing costs. Early repayment charges may also apply if you decide to pay off your mortgage early.
Risk of repossession
Your home is at risk if you can’t keep up with repayments. While lenders may offer solutions like payment pauses or deal restructuring, failure to meet repayments can ultimately lead to repossession.
Additional financial commitments
As a homeowner, you are responsible for maintenance costs and must budget for unexpected repairs, which can be a significant financial commitment on top of mortgage repayments.
Is it better to have a mortgage or not?
The decision to take out a mortgage depends on personal circumstances and preferences.
While homeownership involves some extra costs like maintenance and ground rent, once you’ve paid your mortgage, your outgoings should fall significantly, and you’ll also own the property outright. In comparison, if you’re renting, you won’t see the money you’re paying each month again.
However, in some circumstances, such as if you’re not ready to settle down in one place, you move regularly, and if you just don’t have the deposit to buy a property, renting can provide a flexible option.
Should I take out a mortgage?
Here are some things to consider before you take out a mortgage:
Things to consider before taking out a new mortgage
What value home can I afford?
The type of house you can afford to buy will depend on how much money you have as a deposit, your income, and your credit rating. Our mortgage calculators can give you a better understanding of your budget.
How much money do I have to put down upfront?
It is possible to take out a 95% mortgage, which only requires a 5% deposit, but most people put down around 10-20% of the property price.
A larger deposit not only reduces your borrowing needs but also the amount of interest you pay overtime. A bigger deposit will also mean you’ll own a larger share of the property outright – known as equity – which generally means you’ll be able to get a better mortgage (with lower interest rates) deal too.
What type of mortgage should I get?
The type of mortgage you choose comes down to personal preference and attitude to risk. Fixed rate mortgage deals are popular with buyers who want the security of knowing what their outgoings will be every month, although you might pay a little extra for that peace of mind.
For more information on whether to chose a fixed rate mortgage, check out our guide here.
What if I want to pay off the mortgage early?
It’s worth considering what will happen if you think you might be able to pay off the mortgage early. This can reduce your outgoings, as you will shorten the time for paying off the loan and pay less interest.
But most mortgages have early repayment charges that kick in if you want to pay off the loan within the introductory period. However, this depends on the mortgage and you will usually be allowed to overpay by 10% each year without facing a penalty.
Other useful guides
For more detailed information on mortgages, have a look at some of our guide pages:
Compare mortgages with MoneySuperMarket
It’s easy to find and compare mortgages from a range of leading lenders with MoneySuperMarket. Whether you’re looking for a fixed-rate, a tracker, or a discount mortgage, our mortgage comparison tool can help you find a great deal for you.
We’ll just ask you a few questions about the property you’re looking to buy or remortgage and how much you’ll need to borrow. We’ll then show you results including the initial interest rate and your monthly repayments and any product fees you’ll be asked to pay.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Author
Rebecca Goodman
Personal Finance & Insurance Expert
Rebecca is an award-winning financial journalist with over a decade of experience writing for print and online media. Her mission is to take the jargon out of personal finance and to help everyone...
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Collette Shackleton is a highly skilled Content Writer who has over nine years’ experience creating helpful and engaging personal finance content for consumers. Collette shares her experience as a...
