Using a mortgage calculator

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With property prices rising steadily, and lenders still reluctant to offer big mortgages to first time buyers, there has never been a more difficult time to be a first time home buyer. However, the outlook is improving as the economy recovers.

As a rule of thumb, the majority of lenders will be prepared to lend you up to two and a half times your gross annual income. For example, if you were earning 50,000GBP per year, you would probably be able to get a mortgage for around 125,000GBP.

Before you begin house hunting, it is worth finding out roughly how much a mortgage is going to cost you, and how much you can expect to be offered by a lender. To this end, an online mortgage calculator can come in very handy, although calculations can vary between lenders.

In order to be able to use a mortgage calculator effectively, you need to understand the meanings of a few key terms, such as the back end ratio, the front end ratio, and the down payment. All of these terms refer to statistics pertaining to the borrower.

Mortgage payments can be divided into four categories. These are the principal, the interest, the insurance, and the taxes, commonly shortened to PITI. When this is expressed as a percentage of your gross income, it is known as the front end ratio. Most of the time, lenders will set a maximum front end ration of twenty eight percent, but they have been known to make exceptions.

The debt to income ratio, sometimes called the back end ratio, is the fraction of your gross income that goes into paying debts, including your mortgage, credit cards, personal loans, and child support payments. The majority of lenders recommend that this does not exceed thirty six percent.

During the darkest days of the recession, some lenders were refusing to offer mortgages with a deposit of less than fifty percent. However, things have returned to something approaching normality now, and most of the time you will be required to pay around twenty percent up front, and sometimes even less.

Buying a house with another person can significantly increase the amount of money that you can afford to spend on a property, especially if they are a high earner with a clean credit record. If you have a lot of money saved up, you can get a more expensive property than your income would otherwise allow by making a larger down payment.

Article Source: http://depositarticles.com/

This guide to mortgage calculator terms was written by Katharina Beath. The Alliance and Leicester website contains a mortgage calculator to help you work out how much a potential mortgage loan will end up costing you.

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