Unless you are extremely lucky, you will almost certainly need to borrow money in order to be able to purchase a property. This process is referred to by several names – a home loan, a homeowner’s loan, a home equity loan, a property loan or a mortgage. However, they essentially all mean the same thing – that you are being loaned the capital you need to secure your home purchase.
When you choose to take out a mortgage there are several key things to be aware of. Firstly, your mortgage is a secured loan. This means that it is secured against an asset that you have – in this case, your property. This reduces the amount of risk for your lender since if you do not make your repayments, the lender can repossess your home, potentially leaving you with nothing. Secondly, you can expect to pay interest on your mortgage. While this is usually a significantly lower percentage than you would pay on an unsecured loan, the exact amount of interest you will pay will depend on your individual circumstances including your credit score.
When you are considering buying a property and taking out a mortgage, you will probably look at a number of lenders so that you can be sure that you will get the best deal on your home loan. When you do this, one of the things that most lenders will offer to do it to calculate your mortgage.
What is a mortgage calculation?
A mortgage calculation is essentially figuring out exactly how much you will repay based on the mortgage deal that the lender is offering you. This amount is usually broken down into a monthly figure that includes capital repayment as well as the interest you are accruing. The only exception to this is if you are choosing to take out an interest-only mortgage – more on that later.
Benefits of getting your mortgage calculated
Getting your mortgage calculated is absolutely crucial from a budgeting point of view. It becomes very easy to be swept up in making sure that your new home falls within your maximum overall mortgage amount, but it is just as important to remember that you will need to cover the day to day costs of keeping and running your home. Your mortgage repayment is what secures a roof over your head so should be a priority bill, but you still need to factor in costs such as utility bills, local taxes, HOA fees (if applicable), and maintaining your home – as well as having the funds to live. Since your mortgage repayment is probably the biggest slice of your monthly budget, knowing how much you will need to set aside to cover it each month for the term of your loan is essential.
What is an interest-only mortgage calculation?
An interest only mortgage significantly lowers the amount the you will be repaying, but this is because you will only be paying off the interest you have accrued and none of the capital balance. For this reason, interest-only mortgages are usually only a temporary solution for homeowners who may be experiencing financial difficulties and cannot afford to repay both capital and interest at the same time. By opting for an interest-only mortgage in these circumstances, many people can retain their property where it might have otherwise been repossessed.
Getting your mortgage calculated if you need to refinance your home
Refinancing is the process of obtaining a new mortgage in a bid to reduce your monthly repayments, lower your interest rates, change mortgages or take cash out of your home to make a large purchase, such as a new car. However, refinancing your home usually restarts the amortization process. Amortization is an accounting term that refers to the allocation of the cost of a tangible asset, such as your home, over a period of time. It also refers to the repayment of loan principal over time. Therefore, if you have already been paying a mortgage for 5 years on a 30-year loan and you decide to take out a new 30-year mortgage, you will essentially be making mortgage payments for 35 rather than 30 years. If you are a reasonable way into your mortgage, extending the length of your loan isn’t always financially viable.
Refinancing is not always a suitable option, so it is important to consider it carefully and speak to your mortgage broker before deciding to go ahead.
For more information about the benefits of getting your mortgage calculated, please contact us and get in touch with our experienced and dedicated team who will be happy to share their knowledge and expertise