The magnificent seven - top tips about using remortgage calculators
Are you thinking about using a remortgage calculator? If so, you may wish to read the following tips about how to get the most out of the experience.
Mortgage calculators may be useful tools and may give you an idea about how much you can borrow if you put in details of your salary, other income and commitments. Some calculators may even tell you how much the monthly repayments may be on a particular loan, to assist you with your budgeting.
1. Make sure the information that you put into the calculator is current. For example, if you have got a bonus this year or a pay rise, make sure that you include your most recent rate of pay to ensure that you do yourself justice.
2. Look around. If you just tie yourself to your current provider you may not come across a more competitive lender for your individual needs.
3. Remortgaging is a chance to change – don’t feel stuck to your current deal, or type of deal. So when a remortgage calculator initially returns figures that seem unaffordable, you may wish to lengthen the term of the mortgage or consider an interest only deal and rerun the figures. By tweaking the arrangements that you are asking for, you may end up with a refinancing solution that suits you.
4. Do remember that if you are currently locked in to your existing mortgage deal, you will typically have to pay a redemption penalty. The cost of this needs to be factored in along with everything else.
5. Don’t forget that the actual mortgage application form may be more detailed. Rather than a firm offer of a mortgage in principle, the results that come from a mortgage calculator may be more of a general guide to what a lender may be prepared to lend you. However, they will wish to go through your finances in more detail before they are prepared to commit themselves.
6. Sort your credit rating out first. If the “credit crunch” has taken place since you first took out your original mortgage, you may find the lending landscape has changed, and that lenders may have tightened their lending criteria. Accordingly, before you make your actual application for a remortgage, you may wish to ensure that your credit record is as clean as it could be.
7. Look at the whole funding picture when you are using a remortgage calculator. For instance, you may wish to consider how much remortgaging will save even when you factor in things like arrangement fees. Depending on the lender you choose, some mortgage providers may have calculators on their website that show these costs.
Mortgage Calculators: a short guide in six top tips
Mortgage calculators can be useful tools in planning your finances, and working out how much a lender may be prepared to grant you.
There are many different variations on what a mortgage calculator can look like. Some simply tell you how much the monthly payments on a particular amount would cost. Others offer a more detailed assessment of your own individual circumstances, and
Here are some top tips to bear in mind when using them.
1. The first thing to remember is that mortgage calculators may offer a general guide only. You cannot take it for granted that a lender may be prepared to advance the same amount at the same rate that the calculator seems to offer, as the deal may change once the lender has looked through your own individual finances with a fine toothed comb.
2. Have a bank statement on hand when you are filling in the fields that ask about your monthly expenditure. This may help you to include all of the things that you are really spending out every month, and may help you make sure that you do not miss anything.
3. Have a realistic (recent) valuation on hand. In the past few years property values have varied considerably. Accordingly, you may wish to have your property valued professionally to make sure that you have a realistic idea about its worth.
4. Don’t forget about fees. Mortgage calculators may give the figures for the monthly payments you may need to make, but the arrangement and booking fees for the mortgages that you are considering may be several hundreds of pounds, which may impact on the affordability of a particular deal.
5. Learn from the experience. For example, if a mortgage calculator reveals that your large credit card balance makes you an unsuitable candidate, you may wish to take heed of this advice and reduce the balance so that you may find it easier to get the most attractive deals.
6. Finally, do not assume that they are all the same. If the mortgage calculator for one bank or building society’s website does not offer you a decent deal, then you may wish to check another lender’s.
How to compare mortgage rates - Five top tips
Do the large amounts of money involved in getting a mortgage make you feel overwhelmed? If so, do not panic. Follow these top five tips to help you compare mortgage rates.
1. Look at the total cost of the borrowing. The interest rate that you are looking at is one way to compare mortgage rates, but you may also wish to bear in mind the fees and charges that may also be required to get a mortgage. The true cost of the borrowing is represented by the APR, which includes these amounts.
Some online mortgage brokers have comprehensive calculators that show you how much you can borrow, but also how much the payments for each loan are likely to be. Some not only offer calculators which show the cost of the payments, but they also have calculators that tell you about the wider cost of moving house. It can be an expensive business!
2. Be realistic about discounted rates. The “discount” (i.e. the reduction from the typical figure) does not go on forever. So the payments may rise after the discounted period ends. Accordingly, you may wish to make sure that you will be able to afford the repayments when the discounted period ends and the rate reverts to the standard deal.
3. Decide on your attitude to risk. Tracker mortgages may work on the basis that the lender’s own rate “tracks” the Bank of England’s base rate. If the Bank of England’s rate goes up, then your lender may typically raise their rates too. This means that your repayments may go up too. If the rates go down, your payments may follow.
If you cannot bear the uncertainty (and the potential for much higher as well as much lower rates), then you may be better suited to a fixed rate deal.
4. Weigh up the pros and cons of fixed rate deals. With fixed rate deals, you have more certainty than variable ones but you may be unable to benefit from lower repayments when rates stay very low.
5. Consider other aspects of the deals on offer. It is easy to become obsessed with interest rates, but there are other issues to consider when comparing the deals available. You may wish to bear in mind the fees and charges that are payable, and any early redemption penalties that may be due should you be in a position to pay off the mortgage sooner than you think.
Top six tips when you compare mortgages
Getting a mortgage can seem complicated. But your mortgage payments may be your greatest monthly expense. In fact, your house may be the biggest investment you will ever make. Accordingly, you may wish to compare mortgages to make sure that you get the most competitive deal for your own individual needs.
1. Make sure that you know how much you need to borrow. Some lenders may offer more than others. Moving house is expensive, and you may need to hold back some of your deposit for removal costs, stamp duty land tax and estate agent’s fees. Accordingly, it may be worth working out the total cost of the move before you compare mortgages.
2. Get a mortgage valuation. If you are remortgaging, you may wish to get a mortgage valuation before you compare mortgages. The amount that you are able to borrow may be dependant on the value of your house, as the amount you can borrow may be worked out as a percentage of this amount. In certain deals some lenders, including the Nationwide Building Society may offer a free mortgage valuation.
3. Be prepared to think outside the box. Some lenders may offer an account which offsets your savings and the balance of your current account against the amount that you owe on your mortgage, so you only owe interest on the amount that is left. Such accounts may not suit everyone, but under certain circumstances, the deal may suit your needs.
4. Swot up on interest rates. If you are not used to dealing with financial terms, you may find the terminology around interest rates confusing. However, the more you read about the matter the more sense the different terms may make.
5. Decide between interest only and repayment. Until you have made this decision, it may be difficult to compare mortgages. Interest only deals involve only paying off the interest that is due on the loan, whilst repayments deals involve repaying the outstanding balance. Whilst interest only deals may look much cheaper, you may wish to factor in some kind of saving scheme that includes provision for repaying the outstanding debt.
6. Think of the worst case scenario. In order to make sure that you can afford your mortgage, you may wish to make sure that have provision in place for the possibility of losing your job. Nationwide Building Society may offer free mortgage payment protection insurance cover for some of the mortgage term with their Protector Mortgage and subject to terms and conditions. ING Savings may offer this cover as an additional extra, as may the Halifax.
The importance of a mortgage quote
It doesn’t matter whether you’re applying for a first-time mortgage or are a seasoned veteran looking for a new mortgage or even remortgage, a mortgage quote is typically very important.
Your mortgage costs
The reason for that is twofold:
• you need to know how much your mortgage is going to cost you – and therefore whether it’s affordable;
• it might be useful to know how your mortgage offer compares with others.
The rates and deals offered by the banks and other mortgage providers, change regularly. Getting that mortgage quote isn’t, therefore, a waste of time.
You may find some very interesting deals and price differences!
The cost of your mortgage
When you’re thinking about the quote you’ve received and its affordability, it might be a good idea to keep in mind that you’ll face some additional related costs:
• legal fees for conveyance etc;
• it may be highly advisable to ensure that you have adequate insurance in place that provided buildings and contents protection;
• you may also need to consider having life assurance protection to cover the mortgage (or variations thereof);
• possibly some form of Mortgage Payment Protection Insurance (MPPI) may also be advisable;
• you may have substantial removal fees and expenses;
• there may be stamp duty to pay.
When looking at the total cost profile, you’ll be able to form an assessment as to whether you can afford the move initially and then, whether or not you’ll be able to afford the ongoing monthly payments.
Stretching to the limit
Only you, in conjunction with your potential lenders, can really decide what you can comfortably afford to pay out each month.
Yet comfortably is the key word.
Stretching yourself to the very limits of affordability may mean a deterioration in your standard of living and run the risk of stacking up debts elsewhere.
It’s also sometimes worthwhile to try and build in a little contingency planning to your budgeting. For example, the outgoings may appear manageable now based on two incomes but would they still be if there is an addition to the family meaning perhaps lower household income and a higher expense base?
Your mortgage quote is important but it’s only part of the overall equation. Don’t forget to do all the sums!
Using a mortgage calculator
If you have decided to take the plunge and enter into the world of the homeowner, then getting an indication of just how much it is all going to cost you per month may be a very sensible idea. This does not have to be difficult, as you can easily work this figure out using a mortgage calculator.
There are calculators of this type and in various forms, readily available on the internet.
Borrowing
If you are a first time buyer though, perhaps the first piece of information you’d want from a mortgage calculation is how much it may be possible for someone on your income level to borrow.
This could be as simple as inputting your income and pressing send. Armed with that piece of information, you can then see how much this could cost you per month.
In their simplest form, mortgage calculation aids can help you come up with a repayment figure for the mortgage that you have in mind.
You input the amount of the mortgage, the length of time you want the mortgage to run, and the interest rate for that particular mortgage.
Other relevant information at this stage would be the type of mortgage you’re looking for.
These factors are all typically explained on the relevant internet site.
Repayment
• with a repayment mortgage, each monthly payment is used to pay a portion of the capital and the interest.
Interest only
• with an interest only mortgage, your repayment only goes towards the interest and there is typically a separate endowment or other investment policy which matures at the end of the mortgage term to cover the capital repayment amount.
When using mortgage calculation aids for an interest only mortgage estimate, don’t forget to add in an appropriate sum for monthly premium for the investment policy that will pay off the capital part of the loan.
More complicated examples
Using mortgage calculators may also be able to give you answers to other more complicated mortgage questions. For example, what would the effect on your monthly repayment be if you were to:
take a repayment holiday;
make additional lump sum payments;
etc.
If you are looking for a buy to let mortgage, then some mortgage calculators may also be able to provide you with a realistic rental figure for your property based on the mortgage you have and your costs etc.
These days there’s no excuse for being in the dark about mortgage repayments and using a mortgage calculator in advance can help you understand your financial commitments and avoid them becoming financial liabilities!
Mortgages
Mortgages are a form of loan taken our for the purpose of purchasing a property.
Typical characteristics
A typical mortgage is:
• advanced up to a maximum percentage of the property value (so, if it’s a £100,000 property and the lender only advances up to 80% then the maximum mortgage you’ll obtain is £80,000);
• secured against title to the property – in other words, if you don’t keep up the repayments your lender may force you to sell the house so as to recover their loan plus charges;
• calculated based upon your income and ability to pay – so in the above example you would not be able to borrow £80,000 even if it was 80% unless you had income sufficient to meet the monthly repayments;
• repaid over a number of years, depending upon your requirements and your age/earnings.
Qualifications and risk
Although not necessarily always the case, you may have some trouble obtaining a mortgage if:
• you are unable to raise a deposit equivalent to perhaps 5-20% of the purchase price depending upon the lenders’ policies at the time you apply;
• are looking at a property that is defined as high-risk (e.g. in an ex-mining area known for subsidence);
• do not have a good professional building survey report to support your loan application;
• are not in recognisable employment and receiving a regular and predictable income.
Mortgages were at one time almost exclusively provided by banks and building societies but many financial services companies now offer them.
What are remortgages exactly?
Remortgaging can mean different things to different people. Typically though it is about replacing one mortgage with another:
• if you need to raise capital and own a property, then remortgaging may be an option for you;
• where you simply want to switch to a different deal in a bid to save money on your monthly repayments.
Here we look at remortgaging in order raise capital.
Equity
If your house is worth more than you owe on it (typically a case of your mortgage being less that the property’s market value) then you have what’s called equity or positive equity in it.
So, if you have a mortgage debt of say £80,000 and your house is worth £130,000 then you have equity of £50,000 (providing you have no other credit, such as a secured loan, attached to your home).
You may be able, therefore, to borrow a sum of money and use your property as security for it. That’s called remortgaging.
Theoretically you may be able to borrow up to the £50,000 equity but as lenders typically seek to retain a margin of error, you may find that you can borrow up a percentage of it for remortgages.
Remember though – if you’re unable to repay that loan then your property may be at risk.
Negative equity
This describes a situation where the reverse is true.
Let’s imagine a hopefully unlikely situation where you’ve a £100,000 mortgage on your property and its market value has declined to £90,000.
That’s called negative equity – and in that situation you may find it difficult or even impossible to secure any loan against your property.
In such a situation, remortgages may simply not be available to you and you may need to find an alternative way of raising your required capital.
The remortgage
Why would you wish to remortgage?
This term may sometimes be used to mean a number of very different things. Most correctly, it should be used to describe the process of switching your mortgage from one provider to another or, possibly, to another mortgage product.
There could be many reasons for you wishing to do so including finding a more attractively-priced mortgage elsewhere, wishing to change the term of your existing mortgage to stretch it over a longer period or simply to raise a little capital.
This is all typically possible but you may need to do your sums.
That’s because if you redeem your mortgage early, the original mortgage provider may have the right to make certain charges.
In terms of some aspects of this, particularly if you wish to somehow take capital out of the process, you may need to take into account the value of your property.
It typically works like this:
- if you have a property, it has a theoretical market value (its actual sale value may be very different);
- if you have an outstanding mortgage on the property, then the market value minus the outstanding mortgage is called the equity;
- if you have a large positive equity (i.e. your house is worth a lot more than you owe on it) you may be able to obtain a flexible remortgage that includes equity release;
- if you have negative equity, that basically means that you owe more on your property than it’s theoretically worth – as a result you may find it impossible to make changes that free up capital.
At one time in the UK, remortgages were uncommon and even frowned upon.
Those days are now long gone and many providers have products and services that may help.
In fact, your existing current mortgage provider may be very willing to discuss the options with you directly.
The remortgage, when used sensibly and taking into account your total financial position, may be a very useful facility to have at your disposal. It might be worth looking into in a little more detail.
Top nine tips on getting mortgages
Getting mortgages is (thankfully) not something that homeowners have to do every day. If you are looking for a new home loan, you may wish to bear the following nine tips in mind.
- Know your credit score. In challenging economic times, you may find that lenders may have tightened up their lending criteria for granting mortgages. Accordingly, you may wish to check that your credit history file is all correct and up to date, so that you have an idea about where you stand when applying for a new home loan.
- Look beyond the newspaper or internet rate. Interest rates for home loans that are stated in marketing materials may be for guidance purposes only. Do not assume that those are the rates that are available for you, as the lender may tailor the rates they offer according to your individual financial circumstances.
- Decide on the term that you want to borrow for. How quickly do you want to pay off your mortgage? If you want to pay off your mortgage in a short period of time, you may find that the repayments may be higher than they would be had you spread the loan over a longer period of time. However, a longer term typically means that you pay more interest over all, which you may wish to bear in mind for the purposes of comparison.
- Know how much it may cost. You can find mortgage calculators online that can help you get a feel for how much you may be able to afford and how much repayments will be etc.
- Decide between repayment or interest only. Paying only the interest on a mortgage may sound great – until you consider that the balance is still outstanding that needs to be repaid at some point. Repayment mortgages may mean that you can chip away at the outstanding capital gradually as you go as well as pay the interest, whereas interest only home loans mean that you must not forget to make some kind of provision to repay the capital!
- Swot up on interest rates. Do you know your standard variables from your capped trackers? Looking into the different types of mortgages available may be a worthwhile exercise.
- Are you planning to get a fixed rate mortgage? If so, what do you plan to do after that fixed term has ended? Think about whether you plan to remortgage or whether you could continue to pay the mortgage on the variable rate the loan would typically revert to.
- Consider the worst case scenario about interest rates. On a similar vein to the top tip above and depending on the mortgage type you are considering, you may wish to think about whether you could afford your mortgage if rates went up considerably.
- Finally, are you looking at mortgages that have penalties for early redemption? If so you may wish to consider what it would cost you to remortgage to another deal.