Ostriches heading for financial quicksands

One of the mistakes most commonly made by those arranging a mortgage for the first time is to treat the home loan in isolation.

This can happen with borrowers considering their mortgage only in the here and now, without reference to their wider financial world. The problem with this approach is that it fails to take account of how this new financial commitment will affect other aspects of a borrower's life.

This ostrich-like behaviour would see the new borrower choosing to forget how their mortgage will affect their ability to borrow for other needs in the future. Say, for example, that the mortgage-holder's car is 10 years old. It might be chugging along nicely now but could splutter to a halt just months later. How, then, would the homeowner fund the purchase of a new vehicle?

Previously, a car loan would have been the obvious solution but the mortgage could now make this problematic. Lenders judge a customer's ability to repay a loan on the basis of the financial commitments they have. This means that, if the mortgage has pushed a consumer to the edge of their repayment comfort zone, they will have difficulty getting another lender to give them more money for another reason.

Another negative side-effect would be a lack of consideration of your anticipated future circumstances. It may be possible to repay the homeloan at current interest rates, but how tight would your cashflow become if rates rise? And how would this event sit with additional family expenses, such as a new baby or urgent household repairs?

Borrowers should also consider how happy they will be with their mortgage term in the future. It might seem appealing now to reduce mortgage repayments by extending the term of the loan out to 30 years. Less appealing however is to imagining how content you will be in 30 years' time (when your children could be about to attend college) to still be paying back your first home loan.

Consideration of the wider effects of the mortgage does not have to focus on the negative. As competition grows in the mortgage market, more borrowers are offering products that leverage off the homeloan to entice in new customers in other areas.

Advantages for consumers come in offerings such as Permanent TSB's promise to offer free current-account banking to its mortgage customers. The bank says it will hold off on quarterly account fees, standing order or direct debit charges and transaction fees as long as a customer maintains its mortgage in the same place. This could make sense for heavier banking users, while at the same time bringing greater integration to their financial lives.

In a similar vein, Ulster Bank offers mortgage discounts to those customers holding its U-First current accounts. These accounts, which cost at least €9 per month to maintain, are linked to a reduction of 0.1 of a percentage point on Ulster's tracker mortgage rates. The reduction is coupled with current-account benefits, such as no transaction charges (aside from the monthly fee), and interest payments when the account is in credit. It also carries perks, such as hotel, restaurant and travel discounts.

While such benefits will not be of interest to many mortgage-hunters, it makes sense to be aware of their existence. It is, after all, part of making sure your mortgage is truly integrated into the rest of your financial life.