Mortgage Calculator – A Tool or A Magic Bullet?

A mortgage calculator can be of enormous benefit to you, in helping you choose a mortgage, or work out how much you can borrow.

But the one thing you need to remember is that a morgage calculator is just a tool, not a magic bullet. There are certain things you need to be careful of in the way you use a mortgage calculator – otherwise you could end up in trouble.
• One of the most common types of mortgage calculator enables you to put in your salary, so that you can find out what level of payments you can afford. However, if it doesn’t take into account the other financial commitments and outgoings you have, it could give you a false positive. You know what your financial outgoings are – the calculator doesn’t, unless you tell it! Can you still afford the payments after taking out your gas, electricity, insurance, council tax, phone bills and credit card payments? There are actually a few mortgage calculators that do allow you to factor in these things – so it might be advisable to look for one of these.
• If the mortgage calculator tells you that you can afford to borrow up to a certain amount, this too could be misleading. Beware of borrowing up to the maximum, if you can only just afford it. You may find yourself with problems if you haven’t added in the other costs of buying a house, like mortgage fees, survey fees, stamp duty and insurance. Again, you might be better to look for a claculator that lets you add in these factors.
• The mortgage calculator may tell you that you can afford a particular loan amount, based on the current rate of interest, or on a special rate that a lender might be offering at the moment. What it can’t tell you is what will happen to interest rates in the future. If you can just about manage this amount, you will be in trouble if rates go up. The best plan is to use a calculator that will allow you to adjust interest rates up and down and work out what you would be paying in each case.
• There is a particular type of mortgage calculator that lets you predict whether your endowment policy will be enough to pay off your mortgage. You need to be very careful with this, as it can only make predictions based on current information. Things could change drastically with world events. Even if its predictions are positive, you would still be well advised to have a “plan B”.

A mortgage calculator can be very helpful if you use it wisely. Just remember that it can only make calculations on the basis of the information you put in to it!

Sean Horton is a Director of Enhanced Wealth Limited who are a specialist mortgage broker
with an online mortgage calculator