• How UK Mortgage Lenders Calculate Your Mortgage Payments

    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.

    Mortgage lenders use a number of different methods for charging interest, 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 charging method, 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 £100,000 and a rate of 6.5%: –

    Monthly payment = (100,000 x 0.065)/12

    Monthly payment = £541.67

    Full repayment calculation

    Monthly payment = [[rate x (balance x (1+rate)^term)]/(1-(1+rate)^term) ] / 12

    so with a balance of £100,000 and a rate of 6.5%: –

    Monthly payment = [[0.065 x (100000 x (1+0.065)^25)]/(1-(1+0.065)^25) ] / 12

    Monthly payment = £683.18Monthly interest charging

    With monthly interest charging, the annual interest rate is first divided by 12 to establish a monthly interest rate. This new monthly interest rate is then applied to the mortgage balance to calculate a monthly interest charge for each payment on an interest-only mortgage or combined with capital for each payment if a full repayment mortgage.

    Interest-only calculation

    Monthly payments = balance x (rate/12)

    So with a balance of £100,000 and a rate of 6.5%: –

    Monthly payments = 100000 x (0.065/12)

    Monthly payments = £541.67

    Full repayment calculation

    Monthly pay rate (mrate) = rate/12

    Monthly payment = [mrate x (balance x (1 + mrate)^(term x 12)]/[1-(1+mrate)^(term x 12)]

    so with a balance of £100,000 and a rate of 6.5%: –

    mrate = 0.065/12

    Monthly payment = [0.0054 x (100000 x (1 + 0.0054)^300]/[1-(1+0.0054)^300]

    Monthly payment = £675.21

    As you can see there are benefits to having a monthly interest charged mortgage over an annually charged one if your mortgage is a full repayment mortgage as this example shows a saving of £8 per month.Daily interest charging

    Many mortgage lenders in the UK have now adopted daily interest charging methods, this method is far more complicated and many lenders have their own rules on how they calculate daily charges of interest. Therefore for the purpose of this article the following method will be used, this should provide a guide to how much savings can be made with a daily interest charging method. In order to calculate the daily rate of interest we start with the annual interest rate and divide this through by 365.25 days (0.25 being the leap year). We must then multiply this by the days in any particular month. However you do not make mortgage payments every single day so these charges are rolled up and charged to you on a monthly basis. The main benefit with daily interest charging comes when you make over-payments reducing your mortgage balance immediately benefiting from lower interest being charged. Daily interest charging is often used with flexible mortgages, offset mortgages and current account mortgages as these present huge benefits to the borrower.Dealing with rate changes

    Most of today’s mortgages start of with a special offer rate for a period of time then the mortgage often reverts to the lenders standard variable rate. For example a 4.5% fixed for 2 years followed by the lenders standard variable rate currently 5.6%. How do you calculate what payments will be in 2 years time once the special rate period has expired? Simply put you just start over using the new balance, and remaining term. So based on an original loan amount of £100,000 and mortgage term of 25 years

    Interest-only mortgage

    First mortgage payment = 100000 x (0.045/12)

    First mortgage payment = £375.00

    then mortgage payments after the first 2 years will increase to: –

    First mortgage payment = 100000 x (0.045/12)

    First mortgage payment = £375.00

    Full repayment mortgage

    mrate = 0.045/12

    First mortgage payment = [0.00375 x (100000 x (1 + 0.00375)^300]/[1-(1+0.00375)^300]

    First mortgage payment = £555.83

    In order to calculate the new mortgage payments after the first 2 years we must first calculate the new balance as capital will have been paid for 24 months: –

    Future balance = Monthly payment x [(1-(1+mrate^(term x 12)))/mrate]-(-Initial balance x (1+mrate)^(term x 12)

    Future balance = 555.83 x [(1-(1+0.00375^300))/0.00375]-(-100000 x (1+0.00375)^300

    Future balance = £95467.67

    Now we have a balance for 2 years in the future we can start over with a new balance and a 23 year term: –

    Next mortgage payment = [0.00467 x (95467.67 x (1 + 0.00467)^276]/[1-(1+0.00467)^276]

    Next mortgage payment = £615.91

    Lenders will use a similar process to this when a variable rate changes during the term of the mortgage. They will first inform you of the rate change and then calculate the balance and start over with the remaining term, balance and new rate.


    Like the property markets around the world, the European property markets also have their own pockets of high and sluggish growth. Given below is a brief study of five most popular markets of growth in the region which is preferred by local and international real estate investors since the situation started to improve a couple of years ago.


    Budapest is an exciting, fun, and safe place to live among a growing number of expats communities and friendly locals. It is by no accident that the Hungarian capital tops this list. The city is quite stunning and is seeing massive citywide renovation as well as vast improvements to its public transport system. In addition, the city’s culture is absolutely world-class with opera or ballet tickets going for much less compared to major European cities. People come to Budapest, just to indulge in high-quality performances during the winter season. There is exceptional value to be found all over the city. It was not always like this though. After the global financial crisis, from 2007 to 2014, Budapest real estate market was in a major slump, which drove the prices to rock bottom. It is only recently that the prices and the market started to recover, and more and more investors have been flooding the market since then.


    This picturesque island off the southern coast of Italy is well populated due to its tourism and business sector. Since 2013 it has received a significant influx of capital from international buyers who have invested in expensive properties in Malta which have appreciated at a rapid pace. Between 2010 – 13 prices of properties in their housing sector fell rapidly around 40 percent due to the financial crisis, though earlier they had been growing by 10-15 percent Y-O-Y. The purchases in general were made by European investors and followed by buyers from United States and Africa.


    This second largest city of Romania has witnessed a construction boom with new residential units appearing in 2014. As per the latest records, the number of property transactions has grown by 8 percent in the early part of 2014 when compared to 2013 when demand was still sluggish. During the economic boom period of 2007, the number of residential units grew by 800 – 900 units every year, but during the first quarter of 2014 this same market grew by 1500 units. The majority of foreign investors are from Spain, Hungary, Germany, China and UK while Americans make 1 percent of the total investment.


    Even though Spain was the worst affected nation by the financial crisis in 2008, it has emerged as the fastest growing property market in Europe. Stability has been achieved by the housing sector which had been falling between 2007 and 2013. Prime properties in Barcelona are selling at a rapid pace of 14 percent since early 2014 leading to a simultaneous rise in property prices and sales. Investment in Barcelona’s market has been made largely by British and French investors followed by financiers from Switzerland, Germany and Belgium.


    This historical capital city of Italy is finally showing signs of growth with sale of nearly 6579 properties since the early part of 2014. Housing prices which have been falling for the past seven years are now growing by 0.6 percent. Investment in old and new properties around Rome is being largely carried out by Russian conglomerates followed by small real estate developers from Germany, France, UK and China.


    Property investment overseas is a long term benefiting venture. The asset purchased can be profitable and you as a buyer should never consider your overseas property as passive investment. For, it can serve as one of your best investment property abroad.

    In the 21st century people are exploring every possibility of investing in the real estate industry. In the recent years there has been a lot of hype about buying property for sale abroad. As per the statistics of real estate agents, about a million of British people own a home in other European countries. With the changing trends, there is a growing interest in overseas property for sale.

    With many people moving abroad for vacation, it is convenient if you buy a property in your favourite destination. The survey result of National Statistics shows that around two hundred thousand UK people travel abroad to find a second home – and make an investment in property abroad.

    When you decide to buy a home abroad, there are few important things you have to consider. The following may be of help for making a good investment and finding the right overseas property for sale.

    • Where to buy – The first and foremost thing is to decide where to buy the property. Your investment property abroad can be made in any country, so it is wise to choose the country first and then proceed further. It is better if you make your investment in your most favourite destination.
    • Location – The next important thing is to choose your locale. It may a country house, a town apartment or a beach side villa. The vacation home is going to be one of your ideal getaways. Hence it is important to choose the right place. In case, if you are moving abroad for business prospects or investing just for the sake of rental income, it is always better to invest in town property.
    • Budget – The amount the buyer is willing to allocate for his investment in property abroad. Overseas property for sale can vary from ordinary house to luxury villas. So, the buyer has to fix his/her budget first before investing in property broad. The amount required for the property can be availed even from overseas mortgage loans. The mortgages ease you of financial worries and help you make a successful investment. There are several mortgage plans available. You have to choose one that fits you best.
    • Access to the city – The buyer has to decide upon the accessibility to their neighbours. This is crucial because investment property abroad can yield more rental income if it is within accessible limits to cities.
    • Size – The size of the property has to be decided. It can be one bed room or multi-bedrooms apartment or individual building or villa. The size is proportional to your budget. It is generally advised to look for a property that does not exceed your budget or financial limit.
    • Rent –Property abroad is always not a first home, so buy to let property abroad can be considered. This is a rewarding business venture as the property will earn you regular rental income. In this way, your overseas second home will become an investment property abroad.

    These are the initial questions to which answers have to be found before entering into a deal with regard to your overseas second home or investment property abroad. When you are applying for overseas mortgages, it is always advisable to read through the legal proceedings of the country and especially the region where the property is located. Banks can also help the buyer in this regard. But the investor has to be aware of the interest rates and the insurance schemes before investing in property for sale abroad.

    When you consider your second home as vacation home, then it is better if you plan to let out your property for rent. Buy to let property abroad is always worthy as it generates good income. Popular holiday destinations especially can yield value for your money. Hence by investing in buy to let property your overseas second home can be a resourceful investment decision.


    Times have changed when it comes to finding property for sale in the UK. Not too long ago the only option was to walk down the high street and peer through the windows of estate agents, hoping to find a house for sale that would suit your families needs. Usually there would be only one picture of the property for sale and perhaps a small paragraph of information. Today, with the advent of property websites, it has all changed. Now you are able to sit in the comfort of your own home and browse though many different websites offering houses for sale, viewing many photographs and lots of detail. Many of these websites are run by estate agents so the best course of action is to do as much research as possible when you initially find a house for sale, before you visit the estate agent. You are then armed with valuable information.

    When trawling through property listings it can sometimes be a little overwhelming or daunting when you are presented with a huge range of houses, flats, plots, buildings and other property for sale. The best thing to do is narrow down what you are looking for. For example, if you are looking for a derelict house for sale or perhaps a property to renovate, don’t bother viewing anything else such as flats in London, plots of land for sale or commercial property. These obviously don’t apply to you and will only serve to add to the myriad of potential choices when it comes to looking for a home.

    When looking for houses online you are basicaly faced with two choices: View an estate agents website which will list their own properties or view a nationwide site which lists properties from al over the UK. The internet has allowed the development of some huge property websites and estate agent companies that never existed beforehand, such as propertyfinder or rightmove. Although in some cases they do have high street branches, these massive sites depend on the web for almost all of their property sales.

    If you find a house for sale that you are interested in it’s always a good idea to print out the details and photographs before you visit an actual estate agent office. That way you not only have the information on the property, you have also shown you have done your research and any photos the estate agent decides not to show will already be in your hands. It’s also a very good idea to research the area surrounding the house for sale and decide of that area is a place you want to move to and live in. Simple information but it’s amazing the number of buyers that do not think of these basic steps when finding homes for sale in the UK.

    There are differences in the way houses are bought and sold in the UK depending on the location of the property for sale. Scotland and England have their own laws regarding the selling of houses, land, plots and all other property sales, so be aware of any differences before you commit to the buying process. The practice of “gazumping”, for example, is common practice in England but completely illegal in Scotland. Conversely in Scotland the “offers over” system means you do not know what other people are bidding, whereas in England you do. Other regions such as Northern Ireland may have regional variations so do your research properly before making any commitment to buy any land or building. The most common advice when finding properties for sale in the UK is take your time, narrow it down to the kind of property most suitable and find out about the local area and laws before buying.