Through all the complex industry jargon and thousands of mortgage products at our disposal, we appreciate the crucial part for most of our clients is how much are the monthly mortgage payments. Mortgage payment are typically people’s largest single monthly outgoing therefore it is imperative you correctly budget before taking on any mortgage.
The following three factors determine your payments when you’re repaying the debt:
- Mortgage Amount
- Mortgage Term
- Interest Rate
We need not worry about the mathematics behind calculating the payments as we can manipulate the above variables to find a payment which is affordable for you – providing the bank deem it affordable for you as well of course!
The best place to start is always with how much you can borrow – the mortgage amount. We’ve done a blog on calculating this but it’s always worth speaking to an independent mortgage advisor like ourselves to get an accurate figure. Once we know this, we can then adjust the term to get a monthly payment to suit your budget. The interest rate is the hardest element to manipulate as to do so requires you to put a larger deposit down and this is not always an option.
Throughout this blog, we’ll use example figures to provide you with repayment scenarios.
The mortgage amount represents the financial value of the mortgage. The smaller the mortgage amount, the lower the monthly payments when all other factors are equal. The following represent payments at varying mortgage amounts assuming a 2% interest rate and a 25-year term. If you were to increase or decrease these, it would alter the payments.
- £100,000.00 – £423.85/month
- £200,000.00 – £847.71/month
- £300,000.00 – £1,271.56/month
- £400,000.00 – £1,695.42/month
- £500,000.00 – £2,119.27/month
The mortgage term represents the number of years which the mortgage is taken over. The longer the mortgage term, the lower the monthly payments. The Financial Conduct Authority (FCA) requires we recommend the mortgage to be taken over the shortest practical term possible within your monthly budget. This is because the longer term you take the mortgage over, the more interest is payable on the debt. The following represent payments at varying mortgage amounts assuming a £250,000.00 mortgage and a 2% interest rate. If you were to increase or decrease these, it would alter the payments.
- 15 Years – £1,608.77/month
- 20 Years – £1,264.71/month
- 25 Years – £1,059.64/month
- 30 Years – £924.05/month
- 35 Years – £828.16/month
The interest rate represents the annual percentage charge from the bank which is built into your monthly payments. The lower the interest rate, the lower the monthly payments. The interest rate is determined by market conditions and the loan-to value (LTV). LTV represents the percentage of the property value which is mortgaged. The following represent payments at varying mortgage amounts assuming a 25-year mortgage term and a £250,000.00 mortgage. If you were to increase or decrease these, it would alter the payments.
- 1.5% – £999.84/month
- 2.0% – £1,059.64/month
- 2.5% – £1,121.54/month
- 3.0% – £1,185.53/month
- 3.5% – £1,251.56/month
Interest-only mortgages are also available in certain circumstances. Monthly payments are lower as just the interest is paid. However, they are comparatively more expensive over the full term of a mortgage as you are not repaying the debt – the full debt is then due at the end of the mortgage term. Regulation around interest-only mortgages also means they are less accessible than repayment examples discussed.