The purpose of a mortgage calculator is to give you a rough idea of how much you can afford to borrow when you buy a new house or remortgage your existing one. Because there are a number of factors that go into making up the total sum you will owe – including the intricacies of compound interest – it will not be immediately obvious how much you will need to pay per month.

Mortgage calculators make this job easy for you, enabling you to make a reasonable guess at what sort of sums you are looking at, whether these are realistically within your means, and therefore whether a mortgage company is likely to accept your application when you get to that stage.

Mortgage calculators come in a number of different varieties, though most are easy to use and require only a few simple details from you. Broadly speaking, there are two types.

Type 1 – monthly payment calculators
The first will ask you for the size of the mortgage you want (often minus the deposit you can afford, since this will be offset against the money you are borrowing), the term of the mortgage – typically up to 25 years – and the annual interest rate you are expecting to be applied. From this information it will calculate the size of monthly repayment you will be required to make. Some mortgage calculators have variations which give you different sums for interest-only and repayment mortgages (the latter figure being higher because you are paying off your capital as you go, rather than at the end in a lump sum through a separate investment).

One caveat with this kind is that you are required to guess the interest rate. Obviously you can do this with some accuracy in the short term. However, you are unlikely to be able to predict interest rates with any degree of reliability over the long term – and a mortgage is a long-term loan. In the last 25 years, the Bank of England base rate has fluctuated significantly, going up to 15% in the late 80s. Needless to say, you will need to take into account the effect of any rises in interest rates, and could find your payments doubling or even tripling in future.

Type 2 – total loan size
The second type of mortgage calculator asks you for your salary (or combined salary, if you are a couple), and gives you an indication of the total amount a lender might allow you to borrow. Sometimes these will take into account any monthly outgoings you already have.

Naturally, you should regard the results of either type of mortgage calculator as a guideline only as the actual amount that a bank or building society will agree to lend you will depend on other factors too. For example, the type of mortgage makes a difference, and some special deals are only available through particular mortgage brokers. Nevertheless, mortgage calculators provide a useful first step in deciding how much you can afford to borrow.

Tags: Mortgage Calculator