Mortgage Calculator
What is a mortgage calculator? In exploring loans, especially mortgage loans on the internet you will regularly come across the term ‘mortgage calculator’. Many websites offer free mortgage calculators. So what do they do?

Essentially they give you guidance on how to work out how much you may be able to borrow and how much you will be paying the mortgage company if you take out a mortgage loan to buy a particular property. 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 a mortgage calculator UK will provide you with an indication as to what is affordable.

If you are a first time buyer mortgages or buy to let mortgage you are likely to want to know, how much you are likely to be 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 mortgage, consolidating other debts, or you may want to know what will happen to your monthly payments if interest rates were to change. Furthermore if you have an interest only mortgage and you may wish to explore what the monthly payments will be if you switch to a repayment mortgage.

How much can you borrow?
In the UK banks and building societies traditionally offered 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 mortgage lending can no longer be based on such a simple formula.

In addition to salaries mortgage 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 may get a lower offer.

The larger the deposit you can put forward then the greater the chance that you may get the offer of a lower rate of interest.
A mortgage calculator can provide a 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 calculator will suggest that you may be able to borrow between £121,000 and £171,000. Many sites 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:
Mortgage calculators provide indicators of what might happen. They cannot compute all individual circumstances precisely. You should seek professional advice before committing yourself an d not just rely on a free mortgage calculator.

How much will it cost?
To work out you likely repayments then the key information you need are the size of the loan, the number of years for the loan to 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 for a repayment mortgage are likely to be £1,425 and for an interest only mortgage, £787.

What if …….?
The figures set out above are typical of today’s historically low rates of interest. 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 the mortgage calculator comes in 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 interest rate 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 for interest only mortgages as compared with repayment mortgages.

Armed with this information you may think it sensible not to take out the maximum mortgage currently available since you may not be able to manage the monthly payments should interest rates rise.

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 which are available but you need to seek professional advice on what is best for you as there may be restrictions of the circumstances in which these policies might pay out.

If you do take out a mortgage at today’s exceptionally low interest rates then it might be advisable to budget for possible increases in mortgage rates in the years to come.

Remortgaging
Remortgage your property may be another option which could save you substantial sums of money. Changing your mortgage provider with a mortgage with a slightly lower rate of interest could over the years bring very substantial savings. However before you commit yourself to changing your mortgage you should check to see whether this is likely to result in the payment of substantial additional fees or early repayment penalties.

Again the mortgage calculator can be used to calculate different monthly payments in respect of your existing monthly payments and your potential payments with a new mortgage company.

Summary
A mortgage calculator is just a tool. It does not provide solutions to your problems. It just provides, very quickly, indicators of what you might have to pay are possible, in the various mortgage scenarios you might be in.
Always seek professional advice from a Financial Services Agency registered individual or organisation before committing yourself.