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Mortgage Calculator, How Uk Mortgage Lenders Calculate Your Payments
Copyright (c) 2010 Steve Wentworth
There are a number of ways in which a lender may calculate your monthly mortgage payments. This article provides some guidance on these methods and how you can determine how your payments will increase after a rate change.
This article provides some guidance on how mortgage lenders in the UK calculate your mortgage payments. There are no set rules defined by the Financial Services Authority (FSA ), however lenders must be accurate on the illustrations and mortgage offer documents they supply to you.
How interest is charged
Mortgage lenders use a number of different methods for charginginterest, these methods fall into one of three categories: -
- Daily interest charging.
- Monthly interest charging.
- Annual interest charging.
Annual interest charging
The most simplest of these is the annual interest chargingmethod, this is certainly the oldest method adopted by lenders. Interest is charged at the start of the year based on the mortgage balance figure. This interest amount is then divided through the 12 months of the year for each payment for an interest-only mortgage or combined with capital for each payment if a full repayment mortgage.
Interest-only calculation
Monthly payment = (balance x rate)/12
So with a balance of
About the Author
Steve Wentworth formed his firm Wentworth Financial Services in Nov 2007 having been in the industry since Nov 2002. If your require an
Independent Mortgage Adviser
.
Read the original article in context at
http://www.wentworthfs.co.uk/articles/mortgage-calculator-001.aspx
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