When searching the web for mortgage information, you often study pages with a mortgage calculator. “Mortgage calculator” has even become the most well-liked mortgage-related web search in the UK! But what exactly are mortgage calculators? How do they work, and most importantly, why do I need to exercise one? Let’s gather out.
What is a mortgage calculator? In a nutshell, it is a simple tool on a web page, that will calculate your potential mortgage repayments for your circumstances. You provide information about your mortgage, such as the loan amount, the term, and the interest rate, and the calculator will whisper you how considerable your monthly payments are.
How do I exercise a mortgage calculator? You inspect a lot of different mortgage calculators on the web, but they essentially all work in the same design. You need to give the calculator 3 inputs: the loan amount, the term, and the interest rate. The calculator will then provide you with 2 figures: a monthly repayment amount, and an “interest-only” repayment amount. Let’s have a scrutinize at these inputs and outputs in more details:
Loan amount: this might be called “mortgage required”, “your mortgage” or “mortgage amount”. It is basically the amount you want to borrow from a mortgage lender. This does not include the upfront deposit usually required by most lenders.
Mortgage term: also called “repayment period”, or “loan term”. This is the period over which you want your mortgage to be repaid. If you determine a short mortgage term your monthly repayments will be higher, but you will pay less interest overall. A longer mortgage term will result in smaller mortgage payments, but you will pay more overall for your mortgage, as interest has to be paid for each additional year for which you want your mortgage.
Mortgage interest rate: this is the interest rate applied by the lender for your mortgage. There are a lot of different mortgage types: variable, fixed and some lenders offer a discounted interest rate period during the initial years of the mortgage. You therefore need to enter the interest rate applicable for the term you resolve. For example, if a lender offers a discounted rate of 3% for 2 years, you can exhaust the calculator to calculate the repayment for these initial 2 years. If another rate applies after this period, you can then exercise the calculator to calculate the repayments, taking into tale that fraction of the loan will have been repaid.
Monthly repayment amount: also called “monthly repayments”, it is simply the amount you will have to pay aid to your lender every month to repay your mortgage.
Interest only repayment: this is the monthly repayment in the case of an interest-only mortgage, where your repayment only covers the interest and not the loan amount. In an interest only mortgage, the loan is not repaid at the destroy of the term.
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