Find out how much your basic monthly payment will be for a particular interest rate and term using this straightforward, no nonsense mortgage calculator?
Using the online mortgage calculator to reduce your payments
Do you want to reduce your monthly payments or reduce your overall payment?
A basic introduction to the way a mortgage rate is calculated - and how today's deals often mean you pay more at the end of the day.
Usually, the more of the loan that you can pay nearer the beginning, then the less you have to pay overall.
Conversely, and the logic encouraged by the majority of lenders, is that, you can be made to feel that you can safely borrow more if you are offered the opportunity to have lower initial monthly payments
You're no doubt familiar with the ways that you can get yourself a lower monthly repayment rate but just to recap, here is a list of the most common
- Extend the mortgage over a longer term, say 20 years instead of 15. Depending on your age and your estimated ability to pay, you may be able to extend the mortgage many years further.
- Defer the payment of the capital value of the property until later, while paying mainly interest initially. This may be as an interest only mortgage, where you are trusted, and mostly asked to prove that you have a method of paying off the capital values later on into the mortgage or at the end of the term
- Bundle the initial fees into the overall mortgage calculation and pay interest on that too, rather than forking out early on
- Discount the early payments as a 'low start' mortgage such that the repayment shortfalls early on are made up for by bundling them into the overall mortgage for later payment.
- Offering more security to the deal, such that the loan is more likely to be paid off in full. Having a greater percentage of the value of your house as paid up deposit, rather than mortgage debt, opens doors to a greater number of lenders from whom you are likely to get better deals.
- Negotiate a lower interest rate, either with the same lender or by remortgaging with another. Lenders sometimes offer to pay off the exit penalties enforced by your first lender up front, and often bundle that amount into the long term mortgage value of your new lower interest rate mortgage, thereby both lowering your repayments every month and deferring the liability of the exit fees.
In order for a lender to be able to be flexible about the early repayment levels and allow you cheaper monthly mortgage repayments, they like to make sure that you don't take their early reduced deal and then change mortgagors when the deal is up. Generally this is done by adding stringent terms and stiff exit fees to any mortgage arrangement.
You may be in trouble and not be able to afford your repayments in full at this stage. Literally preferring to spend it on bread and jam to survive with! In which case you are probably looking at the many ways you can reduce payments today and defer the bad news until a later date.
Noone can predict the future and you may think it likely that in the period you have negotiated for repayment of your mortgage you may be in a considerably better financial position than you are today and may be more able to pay higher monthly amounts
It is a view that many subscribe to, and that was, if not overtly stated, definitely encouraged by many mortgage lenders when house prices were rising.
The market has changed considerably now even though house prices haven't fallen quite as fast as many expected. The lenders are much less keen to help you remortgage at all, let alone at good rates so you may find it much harder to justify any overspend. However, the rental market is exceptionally strong which has encouraged a few brave buy to let lenders to brush the moths off their wallets, and due to the weakening demand for property at current prices, decent rental properties can and do come available, and are readily snapped up as buy to let investments.
Reducing your overall mortgage or remortgage debt
By using the mortgage calculator, it is revealing to see quite how much more you will pay overall by implementing some of these strategies, and hopefully make you think twice before you undertake a mortgage that overstretches your ability to pay. And, cynically, it makes it more obvious why the industry doesn't go too far out of their way to make it clear how much extra you will be paying.
Just as a simple example. Assume the following:
- You are being charged a mortgage interest rate of say 6% per annum
- That you are being offered an extra amount of money, say £5000 as a 'cash back' that can be added to the mortgage amount
- That the mortgage repayment will be calculated over a period of 25 years
- And that for the sake of the calculation, interest rates remain on average at this same level etc etc
This results in an overall payment of £9,664.52 for the convenience of cash today.
This is compounded if it is bundled in with a low start mortgage, or by using one or more of the lower repayment strategies mentioned earlier, resulting in your paying even more for your cash.
It is somewhat offset in that the 'real' interest rate that takes into account inflation is lower, and means that the value of the money decreases over time and thus the £9,664 at the end of the day would not buy the same as it would today. However, if inflation increases, so, generally, is there pressure on interest rates, and therefore the mortgage rate, to rise also. The positive effects of inflation 'eating away' debt tend to be most pronounced with long term fixed rates attached to the loan and increasing inflation. These long term fixed rate mortages have not had great take-up and have often been highly priced, thereby adding to their unpopularity.
So just by checking the often crazy looking deals offered by lenders with a simple mortgage calculator can help you establish the long term value of the offer.