Mortgage calculators
One of the most important factors in deciding which house to buy is obviously what you can afford – and mortgage calculators can be a useful tool in determing this.
Whilst it might have been perfectly clear what your monthly outgoings might have been when you were renting, servicing a mortgage is an entirely different matter. If you rent, then your contract just states one fixed, monthly amount. This might be reviewed at the end of the term if you renew your contract, but you always know how much you’re going to be paying.
Mortgages are different. Instead of a fixed, monthly sum, your debt is the total size of the loan you have borrowed – the value of the house, minus any deposit. This will usually run into six figures. On the other hand, you pay it off over a much longer term, perhaps up to 25 years or even more. The problem is, determining what you will pay each month is not as simple as dividing the size of the loan by the number of months of the term. For example, £150,000 over 300 months (in the case of a 25 year mortgage) would give a sum of £500 per month. In reality, your mortgage payments will be far higher.
Compound interest
The banks aren’t in the business of giving out interest-free loans, so you have to factor in the cost of additional repayments. However, this is typically given as a yearly percentage (e.g. 6% per year), whereas the mortgage lasts for perhaps 25 years, but you pay on a monthly basis. Thus the maths behind your sums becomes rather more complicated – more so than can easily be done with pen and paper, or even the average calculator.
Mortgage calculators take the headache out of your budgeting. They can be found in a range of different forms, but all are easy to use and operate in roughly the same way. You type in the size of mortgage you want, the term of the loan and the interest rate you expect to pay it back at, and it returns your monthly payment. So, the monthly payment on a £150,000 mortgage at 6% over 25 years is £978.
Variations
This figure will obviously vary depending on whether you opt for an interest-only or repayment mortgage, but many calculators will give you both anyway. Similarly you should bear in mind that the interest rate will not stay fixed for the next 25 years. If it rises sharply, unless you are on a fixed-rate deal, you will find your repayments rocketing too. Some mortgage calculators included a ‘worst case scenario’ option to prepare you for this – if not, you can try the figures for yourself. For the same example, if the interest rate is 12%, monthly repayments on £150,000 reach nearly £1,600. Of course, you can protect yourself against this by going for a fixed-rate mortgage nearer the time, but it’s best to be prepared.
The Mortgage Broker
0800 822 3355
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
*Correct as at 1st January 2009
