Understanding the mortgage rate calculator

dylantombides

I've been recommended the Money Saving Expert mortgage calculator. I'm interested in working out how much I'll be paying back if I bought a house based on my savings and the price range for my property. I just wanted to check I'm doing this correctly:

If I'm looking at buying a house around £150k with a £25k deposit, would my "mortgage debt" be £125k?

Mortgage terms are normally 25 years I believe? I presume a long mortgage term is better as the repayments are spread out and therefore smaller each month (better for my cashflow)?

Where it says "annual interest rate %" what would you consider standard/normal/the default?

Where it says "mortgage type", is "interest only" or "repayment" the norm? What's the difference?

I'm afraid I can't post the link to the mortgage calculator as I'm new to this site however I'm sure you've all seen it before or can find it easily yourselves. Cheers

need_an_answer

A repayment mortgage is one where you pay back some interest and some capital for the length of the mortgage.The mortgage is fully paid off at the end of the term

I interest only is just that, you will still owe the capital you borrowed at the end of the mortgage term.


Paying repayment will cost you more per month but you owe nothing at the end

Interest only will mean you will need another method of repaying the initial figure you borrowed at the end.

Comms69

The interest rate will be available from your lender (or estimated rate anyway)


Repayment option means that at the end of the term you will own the property


Interest only means at the end of the term you will have to pay £125k

dylantombides

need_an_answer wrote: »

A repayment mortgage is one where you pay back some interest and some capital for the length of the mortgage.The mortgage is fully paid off at the end of the term

I interest only is just that, you will still owe the capital you borrowed at the end of the mortgage term.


Paying repayment will cost you more per month but you owe nothing at the end

Interest only will mean you will need another method of repaying the initial figure you borrowed at the end.

Thanks, that's a lot clearer than all the websites I've tried reading to understand it. So with an interest only, is there a deadline for paying back the initial figure?

Comms69

dylantombides wrote: »

Thanks, that's a lot clearer than all the websites I've tried reading to understand it. So with an interest only, is there a deadline for paying back the initial figure?

Yes when your term expires

AdrianC

dylantombides wrote: »

If I'm looking at buying a house around £150k with a £25k deposit, would my "mortgage debt" be £125k?

Yes. You'd be using £25k of your money and £125k of borrowed money to spend £150k.

Don't forget the legal fees.

Mortgage terms are normally 25 years I believe?

Yes.

I presume a long mortgage term is better as the repayments are spread out and therefore smaller each month (better for my cashflow)?

But not a big difference - most of each monthly payment is interest on the outstanding amount - and you end up paying a lot more interest, because you're borrowing the money for longer.

Where it says "annual interest rate %" what would you consider standard/normal/the default?

MSE Best-Buy Mortgages - https://www.moneysavingexpert.com/mortgages/best-buys/

Where it says "mortgage type", is "interest only" or "repayment" the norm? What's the difference?

After 25 years, you've repaid the money you borrowed with a repayment mortgage, but you've only repaid the interest with an interest-only mortgage and still owe the money you borrowed.

You won't get an interest-only mortgage on the mainstream market these days.

Typically, people would then set up an investment alongside the interest-only mortgage, and pay into that each month. Basically, it was a gamble that the investment would grow more than the interest you were paying on the mortgage. If that investment did better than expected, they'd repay the mortgage early, or have a bit of money left over. If it did worse than expected, they'd have to find a lot of money they weren't expecting. Three guesses which usually happened... The common term for that investment was an "endowment", hence "endowment mortgage". You may have heard something about them...

Where you hear stories like this...
https://www.eastbourneherald.co.uk/news/elderly-eastbourne-couple-face-losing-home-in-mortgage-shock-1-8478270
...it's because they had an interest-only mortgage with no repayment investment in place. I think they must have expected the magic money fairy to quietly slip them a winning lottery ticket, or something.

hazyjo

dylantombides wrote: »

Thanks, that's a lot clearer than all the websites I've tried reading to understand it. So with an interest only, is there a deadline for paying back the initial figure?

You pay it back at the end of the mortgage term.


This will give you an insight. You probably won't qualify anyway. Most people will get a repayment mortgage.
https://www.theguardian.com/money/2015/oct/12/interest-only-mortgages-house-prices-controversial-loans
Interest rates vary according to deposit, lender, current rate, length of fixed rate, etc - lots of things. You might find something at 1.-something, but maybe around 5% or more. The interest rate has been known in the past (fair while ago) to reach double figures, so bear that in mind if stretching with a salary that's slow to increase.