When assessing a mortgage offer it may be difficult to understand whether or not it is actually affordable and sustainable across a long period of time. Being able to afford not just the initial down payment, but also all future payments is crucial in deciding whether or not a mortgage offer is good for a homebuyer. So how do you know if a mortgage offer is right for you?
Information from the Lender
With the new European Union (Consumer Mortgage Credit Agreements) regulations of 2016 lenders are now required to share specific data concerning a mortgage offer in a document called the European Standardized Information Sheet (ESIS). Some of the information specifically detailed in this sheet includes:
- Duration and type of credit
- Total amount of money paid overtime across lifetime of mortgage
- Features of loan, risks included
- How long offer is valid
- Borrowing rate details with revisions timelines
This required information from the lender helps you understand specific details of the mortgage that aid in the processing of budgeting for a mortgage and the purchase of a new home.
Information you should know
Beyond simply having information from the lender, it is also very important to have a solid understanding of your own finances and budget before accepting an offer for a specific amount borrowed.
A stable source of income from steady employment is crucial in establishing the kind of financial security necessary for affording a mortgage.
A borrower must also assess the likelihood of how their expenditures and income might change over time in their future. Examples of how this might change come from situations like a potential in careers, having kids, or a change in income.
Suggested Questions for your lender
On top of the information provided by the lender in the ESIS, it may be beneficial to ask more questions of your lender concerning their mortgage offer. Recommended questions include:
- How might the APR interest rate compare to other mortgage lenders in the market?
- Will I be able to realistically afford the monthly payments associated with my mortgage if my income decreases, or there is an increase in outgoing payments to other sources such as new expenses related to having children? Knowing the answer to this question is crucial as the ability to continue to make payments on the loan as circumstances change overtime is key.
- What insurance will I need for the mortgage?
- Does my lender have a track record of volatile changes in interest rates on mortgages? This question will require extra research on a lender, but is a critical piece of information as you will need to try and anticipate variation in interest rates based off of their history. Even the smallest changes to an interest rate could have large long term effects on the total cost of a mortgage.