Calculate your monthly mortgage payments accurately
In exploring loans, especially mortgage loans on the Internet, you will regularly come across the term ‘mortgage calculator’. Many websites offer these for free including, but not limited to Rightmove and Money Supermarket. So what exactly do they do?
Essentially, they give you an estimate on what your monthly payments will be given the total amount borrowed and the interest rate. For the average buyer, the purchase of a home with a mortgage is likely to be the largest purchase they will ever make in their lives. Using it will provide you with an indication as to what you can possible afford.
If you are a first time buyer or looking for a buy to let kind of mortgage, you likely want to know how much you are able to borrow and what your monthly repayments are going to be.
If you are an existing mortgage holder, you may wish to explore the options about refinancing your mortgages, consolidating other debts, or you may want to know what will happen to your monthly payments if mortgage rates were to change. Furthermore, if you have an interest only mortgage, you may wish to explore what the monthly payments will be if you switch to a repayment mortgage. This is where a mortgage repayment calculator comes in handy.
Figuring out the size of the home loan that can be borrowed
UK banks and building societies traditionally offer mortgage loans of around three times the income of one individual or two and a half times the salaries of a couple with a joint income. However; with the average house price in the UK being around £168,000, mlending can no longer be based on such a simple formula.
In addition to salaries, lending companies now take into account the size of the deposit being offered, and other financial commitments such as repayments on any other loans, normal monthly bills such as gas and electricity, Council tax and so on.
A lender will examine your bank statements for a given period and if you show evidence of sound financial management in your affairs then you may get a higher mortgage than you would simply by using a salary multiple. On the other hand, if you have a track record of substantial credit card debts then you will most likely get a lower offer.
The larger the deposit or down payment you can put forward then the greater the chance that you may get the best mortgages due to a lower rate of interest.
An online borrow estimator can provide a quick calculation as to what mortgage offer you are likely to get.
Say you have a joint income of £50,000, and you can put down a deposit of £20,000, then a typical mortgage overpayment calculator will suggest that you may be able to borrow between £121,000 and £171,000. Examples of such a calculator are on the Barclays and Nationwide websites. Many sites like these will then suggest where you might find such a mortgage offer.
Of course those figures show quite a wide spread, which makes clear an important point:
A mortgage repayment estimators provide an indicator of what might happen. They cannot compute all individual circumstances precisely. Do a mortgage calculator comparison online and see for yourself. You should seek professional advice before committing yourself and do not just rely on a free online calculation.
How much will it cost? – Employ a loan calculator UK
To work out your likely monthly payments, the key information you need are the size of the loan, the number of years the loan will run, and the interest rate you are likely to be offered.
For example if you wanted a loan of £270,000 repayable over 23 years at an interest rate of 3.5%, then the monthly payments are likely to be £1,425 and for an interest only mortgage, £787.
The figures set out above are typical of today’s historically low mortgage interest rates. A few years ago interest rates were significantly higher and they could rise again, especially if inflation becomes a serious threat to the British economy.
If there is a possibility of mortgage rates rising again then you need to be able to be sure that you could cope with any such rise. This is where something like the HSBC’s offering comes into play again. A typical online calculator can quickly tell you what your monthly payments would be if there was a 1%, 2% or 3% rise in mortgage interest rates.
Using the same figures as above, if the rates increased as follows, then the monthly payments would be:
Interest Rate Repayment Mortgage Interest Only Mortgage
4.5% £1,572 £1,013
5.5% £1,727 £1,238
6.5% £1,888 £1,463
You will note that the increase in monthly payments for interest only mortgages is proportionately higher as compared to the repayment versions.
Armed with this information, you may think it’s sensible not to take out the maximum loan currently available since you may not be able to manage the monthly payments should interest rates rise in the future.
There are other what ifs to consider before you agree to take on a high mortgage which is affordable now but, which may not be in the future.
What if, you experienced a fall in income such as from redundancy, or having to provide care to an elderly parent or from your own ill health. Do you have the right insurance policies to cover those possibilities? There are payment protection policies that are available, but you need to seek professional advice on what is best for you as there may be restrictions on the circumstances in which these policies might pay out.
If you do look at mortgage deals at today’s exceptionally low interest rates then it might be advisable to budget for possible increases in rates in the years to come.
Remortgage your property may be another option which could save you substantial sums of money. Changing your mortgage provider with a loan with a slightly lower rate of interest could over the years bring very substantial savings. However before you commit yourself to changing your lender, you should check to see whether this is likely to result in the payment of substantial additional fees or early repayment penalties.
Again a remortgage version of an online estimator can be used to calculate different monthly payments in respect of your existing monthly payments and your potential payments with a new mortgage company.
A mortgage calculator is just a tool. It does not provide solutions to your problems. It just generates, very quickly, indicators of what you might have to pay in the various mortgage scenarios you might be in. Always seek professional advice from a Financial Services Agency registered individual or organisation and/or mortgage broker before committing yourself to anything.
This document does not constitute financial advice under the Financial Services and Markets Act 2000. If you require such advice, you should seek appropriate professional advice.