How to work out what you'll pay in mortgage costs

When checking out different home loans, it can be easy to simply look at the interest rate you'll be paying. But you might want to pay attention to the terms and conditions of the product and use a mortgage calculator to make sure other charges do not become too costly for you to afford.

Indeed, when buying a home, you shouldn't just think about the monthly repayments as there are many other expenses to consider.

If you are on a tracker rate product, for instance, how much you pay every month will be determined by what the Bank of England base rate is.

These loans come at a certain amount of interest above the standard rate so when the Bank of England figure is low, so too are your interest rate charges.

However, when the base rate increases you could find your home loan rises to a level that would make it difficult for you to pay back. This could leave you with little left at the end of the month and make it hard to keep up with payments.

Therefore, you might want to consider taking out a fixed-rate product if you're afraid that you won't be able to pay the mortgage should the interest rates increase. While these products may be set at a higher rate if the base rate is low, you may prefer knowing exactly what you'll be paying every month so you aren't hit with any nasty surprises.

When you sign up to a mortgage, you'll also find that many banks charge a product fee for the home loan. You can either decide to pay it upfront or add it to the cost of the mortgage. It could be tempting to do the latter, but you are likely to end up spending more on the charge as you will have to pay interest on it over the years.

Therefore, if you have the cash to pay it outright when you take out the mortgage, it is advisable to do so you can save money in the long run.

Don't forget that as if you want to switch your mortgage after the initial fixed period of between two and fie years, you'll have to pay this fee again.

This might make you consider taking out a longer term product. Even if the interest rate is slightly higher, you may find that over the period of the mortgage, you could end up paying less if you plan to switch every time the fixed period comes to an end. 

For instance, if you calculate how much you'd be spending on renewing your loan every two years together with your monthly payments, it may be cheaper to take out a five-year loan and reduce the number of times you have to pay the product fee. Or, you could go on a variable rate loan after the term has come to an end instead of switching.

Another thing to consider is early repayment charges. You might be keen on saving money so you can pay off your mortgage quickly. However, banks often set restrictions on how much extra you can put into your home loan by landing you with expensive penalties if you pay more than they allow.

As the property market is always unpredictable, you should also bear in mind that the value of your home could decrease over the years.

If this is the case, you might find yourself in the position where your mortgage repayments mean you are paying more for the property than it is actually worth. And if you want to sell your house in the future, it may even be the case that you end up in negative equity.

These factors demonstrate how important it is to look carefully at the different mortgage products available when taking out a home loan, as there are a number of things that could affect how much you need to pay every month.

You might decide to opt for a fixed-rate option in order to avoid paying more than you can afford, or you could begin thinking about what your plans are in the future for selling the house or flat.

Whatever loan you decide to go for, it is worth reading the terms of each product carefully to ensure that you're getting the best mortgage to suit you and your finances.

Mortgage rates
 

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2011-08-25 13:49:11 © Moneyextra.com