Calculating Your Mortgage

Mortgage interest rates are an important part of a mortgage payment calculation and are definitely something to consider when deciding on the best option out there for you. The monthly interest rate refers to an additional cost that you must pay to your mortgage lender, on top of the amount that you have borrowed from them. In other words, it’s an additional charge from your lender for letting you borrow its money to purchase the property.

Interest rates are affected by various factors such as the stock market, foreign markets, inflation rates and employment levels. However, there are things you can do to improve your chances of getting the best mortgage interest rate. These include saving a bigger deposit, getting a good credit score, using a mortgage broker and, of course, shopping around for the best deal. For the latter, using price comparison sites to compare mortgage interest rates is always a good idea. However, as with the rest of the factors that will be discussed, remember to consider the entire cost of the mortgage across the term, and not just one part of it.

There are different types of interest rates, or mortgage rates, available. Having an understanding of these will help you to find the right loan for you.

• A fixed-rate mortgage is when you can get your interest rate fixed during the initial mortgage period. Despite a change in external factors that can influence an interest rate, it means that your rate will stay the same for a period of time (usually two or five years).
• An adjustable rate mortgage (or a variable rate or a Standard Variable Rate (SVR) as it is also known as) is subject to change based on the Bank of England base rate and the lender’s analysis of the market and their competition. Mortgages after their initial period are on this type of rate but you can, however, get a discounted variable rate for your initial fixed period.
• A tracker rate is dependent on the Bank of England base rate. The mortgage lender’s base rate charge is added to the base rate of the Bank of England. As a result, when the Bank of England base rate goes up and down, so will the tracker rate.
• Here in the UK, the Bank of England set the charge for banks when it comes to lending and savings. This base rate will fluctuate depending on the housing market and the wider economy, as well as other factors. When this base rate goes up or down, so will the SVR of the lender.

A mortgage term, or a loan term, refers to the length of time in which your mortgage must be repaid to the lender, which inevitably affects your mortgage calculations and the monthly payments you will make. When it comes to deciding on a longer or shorter mortgage term, preferences will differ person-to-person, depending on circumstances such as your budget and your age. For instance, based on your circumstances, you might find a 30-year mortgage to be more beneficial, whereas others might prefer 15-year mortgages to complete their mortgage payments. In the event of remortgaging, you can choose to change your term. However, keeping a mortgage loan term the same will avoid having to pay any additional interest.

There are different repayment options available, all of which affect your monthly payments. It’s important to note that a mortgage is usually considered in two parts: there’s the capital which is the money you borrow, and the interest, which the lender charges for the amount you borrow and owe. If you choose a repayment mortgage, you’ll repay the capital and the interest together. However, if you select an interest-only mortgage, you pay back the interest monthly and then, at the end of the term, you’ll repay the capital you owe.