The True Cost Of Your Mortgage
Easy as ABC
It’s easy to say “go and research the market place to find the cheapest mortgage”, but is it that easy to actually do it and how do you know that you have really got the best mortgage deal when you’ve finished?
Searching through mortgage products and comparing the listed interest rates is a time consuming task. It’s also not going to give you the full picture of the true cost of the mortgage.
To evaluate the true cost of a mortgage you need to take into account any set up fees and redemption fees, as well as the variable interest rate when that kicks in after any promotional periods or fixed rates have ended. To evaluate all that lot you really need to speak to a trained and regulated financial adviser!
If you do decide to speak to an Independent Financial Adviser or mortgage specialist then they will be able to take you through all the terms and what each of the figures actually means in hard cash. They will be able to show you which mortgages are the cheapest over which period and most importantly give you advice about which product they think is most suited to your needs.
Alternatively you can just base your decision on the interest rates and do some rough calculations in your head to get comparisons of cost. These might not be actual costs, but they might serve to tell you which is the more expensive out of two products.
How much in total
It’s a lot easier to work out the cost of an interest only mortgage as the monthly repayment is made up of just the interest. With a repayment mortgage the monthly repayments are made up from partly interest and partly an amount that goes to pay of the total loan.
To work out the interest that you will be paying over the term of a £100,000 mortgage, if the interest rate was static at 6%, (impossible in current markets), you simply do the following sum: 100,000 x 6% = 6,000 payable each of the twenty five years ie £150,000. So for your loan you have paid £50,000 to the mortgage company.
This is a simplified version of how things work in reality and while the calculations and interest applied to your account don’t really bare much relation to the above it’s a simple way to see that basically you are paying through the nose for the loan to buy your house.
But we all do it, because that’s all there is. And if you look at it another way, I’m sure the lenders would say that lending £100,000 to an unknown risk for twenty five years is a huge gamble on their part and so they must make that risk worthwhile.
One word of advice that we can give you is this, don’t ever bother to try to work out exactly how much that property is really costing you over the twenty five years. As we show above, it will be an astronomical sum and it can be quite a depressing exercise.
It may be the reason why increasingly savvy consumers are opting in greater numbers for flexible mortgages. These allow them to pay in larger amounts than required when they have the spare cash. A flexible mortgage can save thousands off the total cost over a long time.
But once again, watch out for penalty payments and set up fees if you are thinking about changing from your current mortgage to a flexible one. There are also a huge amount of products that are called flexile mortgages that don’t actually offer you the full flexibility, so make sure the product you are looking at really is offering what you think it is.