They are a popular choice for many seeking to find out quickly how much they can borrow, but can they be relied upon to tell you what you could truly afford?
If you’re thinking of applying for a mortgage, your first instinct may be to go online and find a mortgage calculator. An online search for a mortgage calculator will deliver a vast range of options. There are many different types available, provided by a range of companies. These include money advice websites, brokers and lenders themselves. Barclays for instance has a range of mortgage calculators on its website, including a quick estimate of how much you could borrow, a repayments calculator and an interest rate calculator.
Property websites Rightmove and Zoopla both have a basic mortgage calculator for every property listed. These calculators tell you how much the monthly repayments would be based on the property price, your deposit and a predicted interest rate over 25 years. You can enter your deposit amount and can change both the interest rate and term and the monthly repayment amount will be updated.
A borrowing guide
These are useful tools as a guideline, but it’s important not to take mortgage calculators too seriously. Firstly, they are only as accurate as the information they receive. You can only input the information you are asked to provide. You won’t be asked about all of your expenses. They are best treated as a rough guide to what you may be able to borrow.
While using one might seem like a quick way to find out how much you can borrow, it’s important to be aware that they only perform a basic assessment. Mortgage calculators don’t take into consideration all of your costs. A calculator may tell you the total monthly repayments, the total cost over the life of a mortgage and how much you could borrow. However, they won’t be tailored to suit your personal situation. They also won’t factor in costs like stamp duty, legal fees, mortgage fees and estate agents’ costs.
‘Many people take them too seriously and fail to factor in their full history,’ says MB Associates’ Managing Director Monica Bradley. ‘When it comes to your expenses it’s important to take a broader view. You may have lots of children or you may be paying maintenance to an ex-partner. Or you may have debts that won’t be factored into a mortgage calculator.’
Other factors affecting what you can borrow
When it comes to borrowing, there are other things that can affect how much you can borrow beyond your salary. Your credit score, the loan-to-value ratio (the percentage you are borrowing of the total value of the property) and your deposit. The bigger your deposit, the lower your interest rate is likely to be. This of course will affect your monthly payments. The interest rate could be fixed or variable too. If you accept a mortgage product on a variable rate then the monthly repayments would be subject to change.
The only way to be sure of what you can borrow is to start the process of applying for a mortgage. Speaking to a reputable mortgage broker is a good first step. They will have access to a wide range of products and can advise you on the best mortgage to suit your circumstances. They will also have access to a range of mortgages that may not be available directly to the consumer and will be up to date with any changes in the market.
Hoping to buy your first property? Download our free guide for first-time buyers here.