Using a mortgage calculator

28 April2009

If you're thinking of getting a mortgage - or changing the one you're already on - it's well worth taking a few minutes to 'play' with a mortgage calculator.

It's no substitute for talking to a mortgage adviser, but it can give you a valuable idea of what you can expect if you take a mortgage provider up on one of their deals. For example, it could show what kind of property you might be able to afford, and what you'd have to pay per month.

Most mortgage calculators ask you to fill in the same three fields:

Amount required

How much money are you looking to borrow? If the monthly payments seem too high, what sort of figure would be more realistic? Is it worth looking for a property at that price, or does it look like you should wait until you're earning more?

Repayment period

How quickly would you repay your mortgage? A longer repayment term will mean the debt will accrue interest for longer, so: pay it back quickly and you'll pay more per month but less overall; pay it back slowly and you'll pay less per month but more overall.

An example:

Let's assume you'd pay 6% interest (see note below) on a 100,000 mortgage.

  • Pay it off over 15 years and you might pay 850 per month. That's 153,000 in total.
  • Pay it off over 25 years and you might pay 650 per month. That's 195,000 in total.
  • Pay it off over 40 years and you might pay 550 per month. That's 264,000 in total.

(Note: interest rates aren't actually that simple. Any rate is likely to change (probably many times) before your mortgage is paid off. That's true even if you choose a fixed rate mortgage - few fixed-rate deals last for more than five years, after which you'd have to choose another mortgage or revert to the lender's variable rate. Either way, the rate you'd get then could be very different to the one you'd originally signed up to.)

So it's in your interest to pay off the mortgage as quickly as you can comfortably afford. This won't just save you money: the shorter your repayment term, the sooner your house will be paid for, and the sooner you'll have no monthly mortgage payments to make at all.

Having said that, it's not wise to sign up to a deal that'll stretch your finances too far. This could be very dangerous, as even a small change in your circumstances could make it hard to afford your monthly payments, putting your property at risk.

Interest rate

Different lenders may offer you different rates, and a mortgage calculator makes it simple to see how much of a difference this would make, every month and in total.


Tags: mortgage, calculator, mortgage calculator

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