No-Nonsense Mortgage Calculator
|
Find out how much your basic monthly payment will be for a particular interest rate and term using this straightforward, no nonsense mortgage calculator? |
Home mortgage calculator
Using the calculator to compare a straightforward mortgage rate with the offer rates given by the lender
This no nonsense home mortgage calculator works out the amount you have to pay each month for particular numbers of years over which you may choose to repay your mortgage, for changes in interest rates - which you could get by changing to the best mortgage rates offered from different mortgage providers, and by changing the structure of the mortgage (e.g. by changing to an interest only mortgage.). It is a "no-nonsense" mortgage calculator in that it doesn't presume to include any of the deals offered by lenders. So it can be used to compare what they offer to what would be the straightforward amounts on a normal repayment schedule.
The price you have to pay each month is worked out by calculating the total amount you have to pay back, plus the interest on that amount and spreading it equally across the number of years that you'd like to pay it for. The calculation that is used to determine how the payments are spread is called amortisation. However, different mortgage companies use slightly different amortisation calculations so you may not get an exact comparision with every one you ask.
And the general rules on mortgage payments is that when you plan to reduce your repayments early on in the contract, you are generally storing up larger debts over the long term. The exception to this is if you find a genuinely better deal from a different mortgage provider and you swap over to them.
In order to find out what is generally a better deal, it is a good idea to run through the basics of the mortgage repayment schedule and to take time to determine the exact structure of the new offer.
Bear in mind too that mortgage companies tend to keep their best offers reserved for new customers. They know that once you've done all the initial hard work of buying your house and arranging the best mortgage at the time, most of us fail to check up on our deals ever again. Now we know their game we can wake up to the challenge and find how many thousands of pounds we have been paying too much all these years. And we can do something about it.
Typical mortgage offers tend to come in the following shapes and sizes:
Remortgage with a cheaper lender or better offer
Lenders that offer you lower interest rates, fixed repayments locking in a lower rate and longer terms to reduce the monthly repayment amount.
BUT: Spend some time to determine whether the offer is better once all fees and exit charges are taken into account.
Typical points to look out for are:
- Exit fees: Your current mortgage lender may charge exit fees for moving your account away, look out for the charges that you may be agreeing to with any new offer to make sure they aren't unreasonable.
- The rates the the mortgage defaults to after any offers expire: At the end of a low start period or fixed interest rate period, the mortgage will usually revert to a Standard Variable Rate. This rate is not usually competitive and if you fail to manage your mortgage enough, you may find yourself overpaying at uncompetitive rates.
- Early repayment charges: If a fixed rate or tracker deal locks you in for the length of the deal, which it usually will, it will have a redemption charge built in that you'll have to pay if you choose to break the deal. Some are a whole load less competitive than others. There can be quite significant differences so it is always worth checking and comparing in case your situation changes dramatically.
- Can you move home with your mortgage: If you move home, upsize or downsize, can you take your mortgage with you or will you be penalised with exit fees.
- Higher lending charges for lower deposits: Some lenders will charge higher rates if the deposit on the property falls below a certain percentage. This sort of fee is especially pertinent as property prices reduce. If you are looking to remortgage a property that has fallen in value such that your mortgage only just covers the value of the property and any deposit that you had previously paid has effectively been wiped out on the new valuation, then the percentage the deposit relative to the size of the mortgage will be higher and may trigger higher charges.
- In times of decreasing house prices, lenders may be concerned about negative equity and about your ability to pay - remortgaging your house will be much, much more difficult without topping up from elsewhere. Selling and moving will be similarly problematic. You are unlikely, unless your repayment history has been immaculate, to be offered the best rates. If you don't move and keep your repayment history squeaky clean then the lender usually won't have any reason to be worried about your current situation - unless they choose to, in which case I don't know what action they tend to take, probably, to ask for more money from somewhere else or other property against which they can secure the unsecured bit of the mortgage.
A mortgage summary
Fixed interest rate mortgages
There are several long term mortgage offers for 20 and 30 years with fixed rates for the whole period, at least they are there until you start trying to look for a competitive one.
It seems that instead of just hedging their bets against long term interest rates in the money markets, banks and lenders also added huge risk premiums which means that the interest rates on these long term loans are horrifically high. It is no surprise that the take up of them, despite the advantages of completely predictable repayments for the mortgagee, and predictable income for the mortgagor, is almost non-existent.
Added to the general consensus that interest rates generally have to fall in the near term to push the economy out of recession and it is plain why these are not a success.
Perhaps when interest rates are lower and the economy starts to turn then long term fixed interest rate mortgages will be considered a good deal. But that's if the lenders still offer them.
Interest only mortgages
These are mortgages where the lender will assume (should ask you to show) that you have a means of paying off the actual loan (minus the interest) sometime in the future. The lender may build in some of this payment for a later date in the mortgage, or may rely on your proof that you have this covered.
The lender will then calculate your home mortgage interest rate repayments only. This effectively means that you'll be paying off just the interest on the loan to the lender. No wonder it usually sounds cheaper as you're not actually paying off the main mortgage loan as such!!
This can be a popular type of mortgage if you are buying as a buy to let investor because often the tax can be claimed back from the interest on the mortgage (but not on anything to do with the capital repayment bit). A large number of lenders sold endowment packages alongside the mortgage which allowed you to invest independently of the interest rate repayment mortgage and at the end of the term the endowment would theoretically have increased enough to pay off the price of the capital.
However, the problems with an interest rate only mortgage is that the lender doesn't actually have to ensure that you have a corresponding investment program to support paying off the capital. This means that many people took out just the interest rate only part of the mortgage and hoped that the property would increase in value, and or that they would have enough money in the future to help pay off the capital over perhaps longer and longer payment terms.
If the house prices continue to fall, however, this pack of cards will fall down easily. Many people will be paying off mortgages that are greater than the value of their decreasing property price.
So although it is a way of decreasing the monthly repayment amounts, these are lower because you are not actually paying the full amount off each month.
This home mortgage calculator will show you how much of a straightforward mortgage, amortised over a period of time, will actually be interest repayment, and how much will be capital repayment. Compare this to the figures that you currently pay and you'll be able to ascertain what the effect of the deals that your lender has given you are having on your repayment amounts.
Endowment Mortgages
So you're paying off the interest direct to the lender every month, but how are you going to actually pay for the house itself. Where's the capital repayment going to come from. Enter the endowment idea. Not a bad idea on the whole providing that stock markets are rising and house prices keep above your purchase price. However, in practice, there were many fingers burned and many unhappy bunnies. The fluctuations, big fluctuations, in the stock markets meant that at some periods, endowments that were invested in to pay off the capital were underperforming and weren't doing well enough to cover the capital repayment. Not too much of a problem if there's a way to go before expiration, but a costly problem if the endowment is due to end in a slumpy period. So investment doesn't cover the amount needed to pay off the capital and there's trouble. You have to find the difference from somewhere. You also might try to investigate why this has happened when you were promised at the time of taking up the endowment that all would be ok. Who promised that? When? Enter the endowment misselling scandal that cost lenders millions in compensation.
Stock markets rose again and the problem went away, as the investments tended to perform well enough to cover the capital repayment. However, the recent slump in stock markets means that it is likely that this sort of problem will rear its head again. This time, however, it is unlikely to end up as beneficial for the borrower as before because the salesmen tended to make sure you understood the potential problems when undertaking the investments. So it is likely to remain the problem of the borrower.
Watch the fees with any endowment mortgage. The fees tended to be hugely out of whack with those of other investments. Up to 5% or more could be taken from your endowment every year (compounding the problem). Crazy but true.
Offset mortgages
So you've got a parcel of savings, nested up in an account somewhere, maybe stored in an ISA, and you don't want to use it for your deposit. Well this amount can be used in an offset mortgage arrangement to be deducted off the mortgage amount.
So if you have a £200,000 mortgage requirement and a savings account somewhere with £20,000 in it, then the offset mortage can be calculated against £180,000.
It works from a tax point of view too. The amount of tax benefit you'll get depends on how much tax you are paying on your income, but generally when you save, you are paying tax on the interest that you are gaining on that money. If you offset that amount into your offset mortgage then it is typically arranged by the mortgagor that the interest is no longer credited to your account, but the mortgage is reduced by the amount in your account, so you will be saving interest payments on that amount of your mortgage. It will be calculated at the rate of interest that the mortgage is calculated on rather than any deals you have when saving.
Because it is usual for saving rates from a bank to be lower than the rates at which they lend money, it is typically a good deal with the interest differential for you the borrower.
To counter the fact that the banks may be giving you a good deal somewhere along the line, they tend to increase the interest rates that they charge for the whole mortgage to make up for it. Go figure!
There are two types of offest mortgages, current account mortgages, (CAMs) where the whole mortgage and all your savings are put into one account (the current account), and the net balance is shown as just one figure.
The other type of offset mortgage requires that the savings and mortgage are kept in different accounts, and the interest only charged on the difference - the mortgage minus the savings.
The big disadvantage of these mortgages is the rates that are charged. You can usually find a better offer on a normal mortgage by shopping around.
The advantages come in their flexibility. You can usually have access to the savings portion and, beneficially, if you tend to have lump sum money coming in, it is straightforward to have that be immediately offset against your mortgage and therefore reduce your overall repayment amounts. Conversely, it is all too easy to overspend and have yourself build up bigger interest payments. So it you're that way inclined, better to pay the extras as a deposit that you can't so easily get at.
Discounted Rate
A discounted tracker mortgage tends to follow the interest rates set by the lender - the lenders variable rate. This goes up and down according to how closely the lender follows the Bank of England base rate - which may not be closely at all, but it is usually fairly promptly changed accordingly. You are given a discount from this lender's variable rate to entice you into the mortgage, and this will expire after a few years. It is for you to then search for another deal or else you will be defaulted into their standard variable rate mortgage (or similar) which are never the most competitive on the market.
You will sign up to all sorts of exit fees to try to prevent you from moving your mortgage, however some lenders offer to pay these off for you in order to get you to swap to their mortgage. They will in turn charge large exit fees and it is your risk whether lenders will offer to bail our your fees when the deals come to an end.
If you are a good credit customer, and you are signing up to a deal that will make them money in the end, they will be more likely to enter into this sort of negotiation.
Tracker mortgages
Your mortgage repayment rate will change as your lenders variable rate changes, or it can be fixed to a percentage difference to the Bank of England base rate. Perhaps one or two percent higher. Fixing it to the Bank of England rate gives the lender less control of how and when they can change your rates. Probably a good thing for the borrower.
This tracking arrangement will tend to apply for the whole duration of the mortgage. Some tracker deals are better than others and it is best to search for the best deals. If your expectation is that interest rates will be rising over the near future then a well priced fixed rate mortgage is possibly the most likely choice to benefit the borrower, if your predictions are that interest rates will fall, then tracker arrangements become more attractive.
The home mortgage calculator above will assume a fixed interest rate for the duration of the mortgage in its calculations. Other calculators on this site will offer the functionality to predict your payment schedule in face of varying rates.
Shared mortgages
Getting together with your mates and buying a house with a joint mortgage is great when house prices are rising. Everyone seems to win and as long as you don't fall out, and you accept that it's most likely for the short term, it can be a good way for people to get into a house that they can jointly call their own and not have the restrictions of a rental tenancy agreement around their behaviour.
In times of falling house prices, things get a little more tense as you all jointly lose money together, and some of you may be more able or willing to take these losses and may have different opinions as to the best thing to do about it. This is a good recipe for an unhappy arrangement.
Some lenders will take into account four separate parties, though they are usually paired mortgages.
All owners end up being jointly and severally liable for their mortgage payments should any shortfalls occur, so it is vital that everyone has written agreements as to what happens when they can't pay.
Government shared ownership scheme
In another effort to prolong the good times just until the end of the government's term of office, more ill devised mortgage ideas spring forth from the government. Now us, the tax payer, will take on even more problems of the house prices crashing, by jointly owning many first time buyers properties. So if you're up to here with property debts and need a stable government to make sure that when everything goes wrong, they've planned a way out - then in this case, they're just making it a whole load worse by taking more unquantifiable risk onto the government books.
However, it may be good for the individual borrower as it gets you a bigger flat or house for the money you have.
Typically a housing association will buy the remaining 25% to 75% of the property. You will be responsible for keeping the house in good orer and have full rights to the property title. You will have the rights of an owner occupier and can buy back the government share of the house in the future.
They are typically offered to people who are classified as needing them for the good of the community and include:
- Social Tenants who work in the public sector
- Key Workers who have a household income that is usually not big enough for them to purchase living accommodation near to their work. This would include mortgages for nurses, mortgages for firefighters and mortgages for teachers
- Those on housing association waiting lists.
There is usually a fee of say 3% that is payable as rent to the housing association for use of their part of the property. This will be added to your mortgage payment.
You are expected to take out the largest mortgage that you can afford, to reduce the liability for the government. This is usually about 50% of your take home pay.
50% is a huge proportion of take home pay and will leave the borrower likely very strapped for cash every month. Average mortgage payments are about 35% of take home pay across the nation.
You cannot buy another home without first buying out the governments share of the property. Nor can you take out any other loans or mortgages without permission. You upgrade or modify the property without good reason as this money is theoretically earmarked for first dibs to buying the other part of the property off the government.
The restrictions tend to be unwelcome but probably less than those placed on you in a rental situation under a tenancy agreement.
Remortgaging
Some of the highest activity in the mortgage market is from people remortgaging. It is wise to look for the best deal periodically, prior to your previous deal running out, anyway. With the credit crunch and the property crash, more people are being pushed into looking at how to reduce their rates.
Looking for best buys and taking into account exit fees, valuation fees, discounts and low start rates has become an occupation for many. Using a no-nonsense mortgage calculator like the one on this page, will allow you to sift the wheat from the mortgage offer chaff.
We discuss remortgages and calculators for your remortgage elsewhere on the site