Work out your monthly repayment and total amount you’ll repay, including fees
Realising how much you can borrow based on contract earnings will be a revelation for most. But before you get carried away, you must check that you can afford the monthly payments.
Lenders base their mortgage offer on what they perceive you can afford. Your monthly mortgage loan repayments also reflect their affordability calculations.
We’ve built our mortgage repayment calculator to help you visualise those repayments.
The resultant figure is what you’ll need to pay each month. The graph displays the effect of those loan repayments on the balance over time.
Please, feel free to adjust the figures as much as you want. You’ll find full explanations of what the individual components are below the calculator itself:
How does the mortgage loan calculator work?
There are four components you need to have to hand to use our repayment calculator:
- The mortgage loan itself – how much you want to borrow;
- The interest rate the lender’s offering (enter the precise percentage amount);
- The term – how long the mortgage is over;
- The mortgage type, either capital and interest (repayment) or interest only;
- and finally there’s an option to include any fees you’re adding onto the mortgage.
How much can I borrow?
Don’t know how much you can borrow based on your contract rate? No problem; our contractor mortgage calculator can help you there.
For the purposes of this calculator here, you only need to enter the amount you’re borrowing. Deduct your deposit from the total amount you’re paying for your new home.
For example, if you have a deposit of 5%, you’ll be borrowing 95% (of the total cost of your new home). In industry terms, that’s a 95% LTV (loan-to-value) mortgage.
So if your home costs £100,000 and you have 5% deposit (£5,000), you’ll borrow £95,000. It’s the £95,000 you enter into this calculator.
Mortgage interest rates can make a real difference to how much you repay each month. Most lenders offer an introductory term to entice you to choose their mortgage product.
The initial rate, anything from one to five years, will have a fixed rate. Once the introductory period is over, you’ll revert to their standard variable rate. That is, of course, if you don’t remortgage with them or another lender.
Your credit rating can affect the mortgage rate you’re offered, as will the size of your deposit.
For the purposes of our calculator, enter the introductory rate. There’s no telling at this juncture what the lender’s SVR will be when your initial term comes to an end.
You can also use our calculator to see which mortgage loan term works out best for you. The loan term? That’s how long you think it will take to pay off your mortgage.
25 years is still the most popular term homeowners choose to repay their mortgage. But as Bob Dylan once sang, the times? They are a-changin’.
Lenders offer anything from 2-year to 40 year mortgages today.
The shorter the term, the less you’ll pay in interest. But please do be sensible about your monthly mortgage payment. Buying a home at the top end of your budget may reduce your ability to reduce the term.
Your mortgage interest rate will also have a bearing on your monthly payment. The higher the rate, the more you’ll have to find each month to pay off your mortgage.
As a contractor, you’ll have one of two types of mortgage:
- a capital and interest (repayment);
- an interest only mortgage.
Capital and interest (repayment) mortgage
A repayment mortgage is where you pay off some of the capital you’ve borrowed plus interest. You’ll have a fixed-rate mortgage during the introductory term, when interest will be lower. Then you’ll revert to the lender’s variable-rate mortgage.
Once you’ve made all your repayments, your home is yours. You’ve settled the debt with the bank and they close your mortgage account.
Interest only (endowment) mortgages
An interest only mortgage is where you only pay interest on the amount you’ve borrowed. This too may have an introductory term, and then revert to the SVR.
But you must realise that you’re only ever paying off the interest with this type of mortgage. You’re not reducing what you owe the lender in any way.
So to run alongside your mortgage, you must have an investment mechanism in place. The purpose of this mechanism policy is to pay off the capital at the end of the term.
Lending guidelines have changed. Today, lenders need to have utmost confidence that your repayment vehicle will work. If they haven’t, they’re unlikely to sanction your interest-only mortgage.
As such, your actual mortgage repayments are lower than with a capital and interest loan. But you must take into account the cost of your investment vehicle or ‘endowment’ policy, too.
Most mortgages attract additional fees, like lender arrangement fees. These vary, but you may have the option to add those fees onto the mortgage itself.
If you add them on, you’ll be paying interest on that fee for the life of your mortgage. But we understand completely how tight things can get. Especially if you’re a first-time buyer and need as big a deposit as you can muster.
When you see the difference a bigger deposit can make, you may want to forsake paying the fees up front. Yes, you may incur interest on the fee. But you might also be better off putting that cash towards your deposit.
If you’re unsure, our advisors can help you work out which is better for you. Put everything else through the mortgage repayment calculator first, and then give them a call. Or request a call back, whichever suits you best.
Offset mortgage calculator?
You may have also heard about offset mortgages for contractors. Certain lenders are now making those available, too.
To make them work, you first need savings. The bank then offsets them against your remaining mortgage balance. The net result is that you only pay interest on the difference.
Say you owed £100,000 on your mortgage and had £25,000 in savings. You’d only pay interest on the £75,000 difference, your savings offsetting mortgage interest.
To enquire about an offset mortgage, talk to our staff. There are many variables, plus you may not feel comfortable submitting your savings online. Our advisors will take your details in confidence and forward you a mortgage quote on that basis.