If you’re thinking of applying for a mortgage, perhaps the first thing you should do is use a mortgage repayment calculator.
Your decision on how much to borrow should not be based simply on the price of the house you’re looking at. Even more important than this is how much you can afford to pay towards your mortgage each month.
The thing is, if you can’t afford your monthly mortgage repayments, you risk your property being repossessed by your lender when you fall behind. Having said that, it’s very unlikely a lender would even accept your mortgage application if they think you can’t afford the necessary repayments.
Using a mortgage repayment calculator shows you how much you will pay each month based on how much you want to borrow and how long you’ll pay it back for. If you know those repayments will be too high for you to manage, it’s worth either putting off your application until your financial situation improves or until you’ve saved a larger deposit.
What can I afford to borrow?
First things first – have a look at the Ocean mortgage repayment calculator. Enter the amount you’re thinking of borrowing (mortgage amount), how long you think it will take to pay it back (mortgage term), and the interest rate (APR).
The calculator will then provide you with an estimate of how much you can expect to pay each month and what you’ll end up paying in total. It will also give you a mortgage repayment schedule, which shows you the percentage of your repayments that will go towards interest and how much will go towards the actual capital of your home.
If the monthly payment estimate the calculator gives you is at the very top end of what you can afford, you may want to consider borrowing less. It’s important that you can comfortably afford your mortgage repayments and your other financial commitments, like utility bills and credit card or mobile phone payments, so that your finances aren’t stretched too thin.
Your lender will carefully consider all of your outgoings as well as your income when you apply and will want to see that you have more than enough to cover your mortgage repayments as well. They will also consider whether you’d still be able to afford your mortgage if interest rates went up and your payments followed suit.
Keep all of this in mind when you work out what you can afford to borrow and the house you can afford to buy. It won’t seem like such a dream property if you struggle to afford to pay for it.
Can increasing my mortgage term make my repayments cheaper?
One way to lower your monthly mortgage repayments is to increase the mortgage term – the period of time over which you’ll pay the total debt off. Traditionally, mortgage terms last 25 years but it is possibly to get one for 35 or even 40 years.
So, if you borrowed £100,000 and paid it off over 30 years, your monthly payments would be lower than if you were paying the loan off over 20 years as it’s stretched over a longer time.
Sounds simple! But, you should think very carefully about choosing a long mortgage term for many reasons. The first is that by paying back your mortgage over a longer time, you’re likely to end up paying more interest overall, which means your mortgage will be more expensive than if you’d had a shorter term.
Another thing to consider is how old you’ll be when your mortgage term nears its end. If you take out a mortgage with a 40-year term when you’re 35, you’ll be 75 when you finish making repayments. You may well have retired a while before then or be working reduced hours, so will your income still cover your repayments? This is the sort of thing that can make a lender nervous when you apply.
One way around this is to make overpayments when you can afford to do so, which will reduce the length of time you’re making your repayments for. However, you’ll need to make sure your lender will allow you to make overpayments without charging a penalty.
As we said, there’s a lot to consider when you apply for a mortgage, but using a mortgage repayment calculator before you do really is useful. It can help you get your head around how much your mortgage will cost you each month and, therefore, what budget to set for your house search.
Disclaimer: All information and links are correct at the time of publishing.