How can one ensure financial stability alongside having a mortgage?

Balancing a comfortable daily lifestyle and financial investments is tough and makes planning for a mortgage a minefield. However, with proper tech tools, one can ensure doing so without massively altering current spending.

WealthTech firm Kidbrooke released its latest video, which said that people must invest time into financial planning before putting in money towards a mortgage. It’s no secret that mortgages, or homeownership lending, is a key macroeconomic driver and a crucial mechanism for the transmission of monetary decisions.

It is, therefore, increasingly important to plan and allocate finances from an early age should one want to invest in a house. Alongside planning and wealth management, Kidbrooke highlighted the key factors people must keep in mind before making a mortgage decision.

The first being its utility. One must address concerns such as are they getting a mortgage for a growing family or for work or lifestyle reasons?

Secondly, and more importantly, is assessing affordability and whether one is financially prepared to bear the cost of a mortgage whilst managing a comfortable monthly budget.

After the financial crash in 2008, lenders require significant deposit payments, often up to 25%. For first time buyers, funding these deposits can involve many years of saving and investment prior to purchase. Unsurprisingly, the largest share of mortgage holders in the UK are in the age range of 45 to 54 years old with a minuscule percentage of them being below 30, according to figures by Statista.

To add on, fluctuating interest rate and the effect they can have on mortgage obligations can be acute unless they are considered properly and meaningfully.

Tellingly, a mortgage is one of the most tangible ways people deal with financial risk on a day-to-day or more accurately month-to-month basis. Therefore, it is important to weigh the risks involved.

To make financial planning more accessible, banks and insurers leverage data analysis and AI and get a complete view of a person’s personal finances, how they deal with financial risk and their ability to invest in the financial market or a mortgage.

However, risk analysis doesn’t take into account issues like a sudden pandemic. The Covid-19 pandemic has proved that one always need to be financially prepared for unprecedented and uncertain times. As a result, planning and continuous assessment of one’s finances is more important now than ever, Kidbrooke’s blog post said.

Kidbrooke said, “Few tools available on the market offer an all-encompassing ‘holistic’ framework which can contextualise how we can make such decisions to lead to optimal outcomes.”

One of them is Kidbrooke’s financial calculation engine OutRank which would examine different mortgage terms whilst calculating the user’s monthly budgets. “One of the core features of OutRank is the holistic nature of such an analysis,” the post read.

For instance, it would look at how various levels of amortization could impact a person’s financial situation in the long term.

If a user plans to invest a portion of their housing budget after interest and amortization payments into the financial market, OutRank would calculate an impact of this decision in connection with their net worth over the years as well as the riskiness of the investment product.

While saving might seem to be the silver bullet to ensure a mortgage and financial stability, the key driving factor is having proper financial management and tech-based tools required for planning for big decisions such as a mortgage.

Lastly, while mortgages will always be a principal personal finance concern, they should not be a millstone. “With good planning and preparation, we can all navigate the associated risks and achieve good outcomes,” Kidbrooke added.

Watch the full video here.

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