Can you afford a mortgage or loan? - II

What can you do now to help protect yourself against the risks of changes in your circumstances and interest rate rises?

■ Plan your budget based on what you might have to pay in future as well as the initial cost
– don’t forget to include all your household expenses, such as buildings and contents insurance premiums and council tax.

■ Try not to take the maximum mortgage on offer – just because you can afford it now, doesn’t mean you can afford it in the future.

■ Think about whether you need a fixed rate so that you know your mortgage payment will stay the same for a given period – but don’t forget that if rates fall, your payment won’t.

■ Build up your savings so that in an emergency (for example, if you lose your job) you can still afford to pay your mortgage and bills for a short time. Compare rates on savings accounts on FSA’s comparative tables, newspapers or websites.

■ Work out how long you could live on your savings if you lost your job.

■ Check what benefits your employer will provide if you became ill.

■ Insurance – various products can insure you in the event of redundancy, critical illness, or accident. You should consider these but make sure they meet your needs: there are restrictions on when and how much they will pay out. Make sure you understand the limitations of any policy and how it protects you. For information on all types of insurance, see the Association of British Insurers (ABI)

Information Zone at www.abi.org.uk.

If you do get into difficulties

Talk to your lender if you cannot meet your mortgage payments – they will have a set procedure for dealing with your case.

State benefits – may be available but may cover you only after an initial waiting period; for example:

■ you won’t qualify if you have a joint mortgage and only one of you loses your income;

■ you won’t qualify if you have savings of more than £8,000;

■ you may only qualify for help nine months after you become unemployed (unless you took your mortgage out before October 1995);

■ payments will only cover the ‘interest’ part of the mortgage; and

■ there is a limit on the amount of mortgage that qualifies.

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