Mortgage calculators are great tools for first-time buyers and people looking to remortgage. But how accurate are they?
They’re free, easy to use, and they’ll give you a rough ballpark figure of how much you could borrow. But they don’t paint a full picture of the finances involved. The key is to use calculators as a guide, and to do your own number-crunching on top. Here’s how to use mortgage calculators the smart way and understanding the limits of what they can do for you.
Mortgage calculators don’t factor in all costs
There are many different mortgage calculators available on the internet, but none of them factor in the complete costs of buying a house or remortgaging your home. By punching in basic info (mortgage amount, number of years and APR) a calculator will give you:
− The total cost per month
− The total cost over the life of the mortgage
− How much you could borrow
But things like stamp duty, legal fees, mortgage fees and estate agent fees aren’t factored into the total. These are the biggest upfront costs that home buyers have to cover. After that, there are ongoing costs to think about too, such as home insurance, council tax and everyday running costs.
If you’re serious about working out what’s affordable, make a list of every cost, even down to the little things like removal vans and storage. Use online mortgage calculations as a baseline for figuring out your budget.
Keep it realistic
Mortgage calculators only give you an accurate idea based on the APR and the size of the deposit you key in. So having a good idea of what sort of deposit you’ll cough up will give a more realistic idea of your mortgage payments – as well as knowing what APR you’ll receive. Lots of things can affect APR, including:
− Your credit score
− The LTV or Loan-to-Value ratio (the percentage you are borrowing of the total house value)
− Your deposit (generally speaking, the bigger your deposit the lower your interest)
− Interest rate type (fixed or variable)
The only way to know the true APR is to arrange a mortgage meeting and begin the application process. Lenders are required to give a loan estimate when you apply if the form of a Key Facts Illustration, and even though this only an estimate, you should get this rate if you meet the requirements laid out during the mortgage interview. It’ll also include fees, so it’s more accurate than simply using a calculator.
Calculators are a step before applying
This doesn’t mean that calculators aren’t useful. In fact, online mortgage calculators should be your first port of call when thinking about buying a house. Too many failed mortgage applications can damage your credit score, so it’s important to work out the maths before you go full steam ahead. Don’t chance it – check your credit rating, do your research, and use a mortgage calculator to get an idea of costs and the price of house you should be looking to go for.
Not all calculators are created equal though. Some are very basic, whilst others have advanced settings so you can consider all financial scenarios. Our free mortgage calculator not only estimates your monthly payments, the total amount you repay over the term, and the costs of the loan itself, but it helps you work out any overpayments, too.
You’ll be able to see how much faster you can pay off your mortgage based on higher monthly payments or by paying bigger sums. This is handy for anyone expecting a wage increase or a lump sum of inheritance – or homebuyers who have additional savings they could use.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.