Becoming a homeowner is one of the most exciting stages of anyone’s life. Finally, a place that is yours, not your landlord’s. And, you get to look forward to the day when that mortgage is paid off and you can enjoy life without having to come up with a monthly repayment.
On the other hand, it is also a huge responsibility. After all – you have to come up with X dollars every month or risk losing your home. What if something happens and you lose your steady income five, ten, or fifteen years down the line? What if your employer becomes insolvent or you fall ill and can’t work – how will you pay your bills?
These are ultra-important questions that every home buyer should ask. Taking the right steps now, you can ensure that you’ll be able to pay your mortgage, even if the unexpected happens. After all, no one knows what will happen in the future, especially over the long-time span of a 20 or 30-year mortgage.
Follow this checklist so you don’t have to ever worry about not being able to pay your mortgage, and potentially losing that home that you’ve worked so hard for.
1. Get Insured
As with all risks in life, there is an insurance policy that you can take out to reduce your risk – mortgage protection insurance. As opposed with mortgage lender’s insurance, which protects the lender should you default, mortgage protection insurance will protect you if you can’t make mortgage repayments because:
- You lose your job, including because of redundancy
- Temporary or permanent disablement that stops you from working
- Death, in which case a policy will ensure that your family doesn’t lose your home
2. Set Up an Emergency Fund
Financial experts suggest having at least three to eight months of your living expenses set aside in case you run into trouble. The idea is that you should have enough money in a liquid account, such as a high interest bank account, to access when you need it so you can cover your bills in the case of an emergency, like job loss. An emergency fund can also be used to pay for sudden, necessary expenses so you won’t have to go into debt.
When you buy your first home, chances are you’ve put most of your extra savings towards your downpayment, or are planning to if you are still in the market for a home. Still, it is a good idea to set aside emergency savings. If you don’t have at least three months – including what your monthly mortgage repayments will be – then put what you can in a separate high interest savings account and deposit a little bit each month to grow your rainy day fund. If you do lose your job, you’ll have enough money to live comfortably until you can find another source of income.
3. Don’t Overextend When You Take Out Your Mortgage
This may be difficult, especially if your dream home is at the top of your budget, but taking out a mortgage that you can comfortably afford is a smart financial move. Running into financial trouble isn’t as big of a problem if your monthly repayments don’t consume every last bit of your income outside of your normal expenses. When looking at homes, look at those that are well within your price range. If you already have a mortgage, consider refinancing to lower your monthly repayments.
You can take these steps to protect yourself in case you do lose your job for some reason and to give yourself peace of mind. If you should happen to be retrenched, be sure to contact your lender. They may be able to renegotiate the terms of your mortgage or work something out temporarily while you look for another job. Remember, your lender wants you to stay in your home and continue paying your mortgage too!