Get more out of online mortgage calculators with these simple tips.
1 – Think long…
Your mortgage will last years, maybe even decades. Over such a long period it is pretty much certain that there will be times when the interest rate is both above and below today’s rates, which will make a big difference to you. So don’t just use the default interest rate in the calculator, try moving it up and down and make sure you can live with the payment numbers.
2 – …but not too long!
We have all sat and tried to make our own mortgage numbers work out – not an easy thing with the price of houses in Australia nowadays. One choice could be to extend the loan years, it doesn’t seem to hurt but it does – a 30 year mortgage for $500,000 costs around $80,000 more in interest than a 25 year mortgage. Go down to 20 years and you save another $75,000. Try it for yourself at MoneySmart.
3 – Extras work
At times when things are going well in life’s journey there are likely to be opportunities to make an extra payment off your mortgage. Be prepared, simulate it here!
4 – Combo of fixed then variable
It is common nowadays to have a fixed rate period at the start of a home loan. Some home loan calculators can’t handle this but HSBC can.
5 – ‘Interest only’ can be like insurance
Looking into your future there will probably be a moment when something goes wrong for you and the mortgage can become a pressure point. If you have a principal and interest loan then switching to intertest only for a period may help relieve the pressure. It is worth asking your lender about this at the start so you know the option is there.
This works even better on a shorter term home loan – the difference between principal and interest and interest only expands rapidly as the loan term comes down.
By following these 5 tips you will not only make a better decision, you will also put yourself in a better position to talk with your lender or broker. S/he will know that you have been planning actively and thinking through future scenarios.
Tony Kent is founder and Joint Managing Director of Spark Green, the digital agency for Finance. The company helps financial institutions to improve their online presence.