The cost of borrowing £900,000
Most people would agree that a mortgage of £900,000 is a significant debt that involves large monthly payments. It’s therefore important to get expert advice and compare all the available options before making any decisions.
Your monthly repayments on a £900,000 mortgage will be determined by a number of factors, including the loan to value ratio, the interest rate and the term of the mortgage.
The loan to value ratio (LTV) is the size of your mortgage in relation to the value of your property. The lower your LTV, the less risk you pose to a lender and the more likely you are to be offered a lower interest rate. To lower your LTV you need to increase your deposit.
The term is the length of time over which you will repay your mortgage. The longer the term, the lower your monthly payments but the more you will pay in total over the life of the mortgage.
If you choose an interest only mortgage then the mortgage term will not affect the monthly cost, as you will see in the table below.
As a guide only, the tables below provide an indication of monthly repayments.
Interest only mortgage per month
| 900K Interest Only Mortgage | ||||||
|---|---|---|---|---|---|---|
| 2% | 3% | 4% | 5% | 6% | 7% | |
| 10 years | £1500 | £2250 | £3000 | £3750 | £4500 | £5250 |
| 15 years | £1500 | £2250 | £3000 | £3750 | £4500 | £5250 |
| 20 years | £1500 | £2250 | £3000 | £3750 | £4500 | £5250 |
| 25 years | £1500 | £2250 | £3000 | £3750 | £4500 | £5250 |
| 30 years | £1500 | £2250 | £3000 | £3750 | £4500 | £5250 |
The above figures only include the mortgage interest, there is no provision for repayment of the capital sum borrowed.
Repayment mortgage per month
| 900K Repayment Mortgage | ||||||
|---|---|---|---|---|---|---|
| 2% | 3% | 4% | 5% | 6% | 7% | |
| 10 years | £8281 | £8690 | £9112 | £9545 | £9991 | £10449 |
| 15 years | £5791 | £6215 | £6657 | £7117 | £7594 | £8089 |
| 20 years | £4552 | £4991 | £5453 | £5939 | £6447 | £6977 |
| 25 years | £3814 | £4267 | £4750 | £5261 | £5798 | £6361 |
| 30 years | £3326 | £3794 | £4296 | £4831 | £5395 | £5987 |
The above figures include both capital and interest combined into one monthly payment.
But what if you needed to borrow a million pounds, how much would that cost?
So, borrowing £1,000,000 over 25 years with an interest rate of 5% would cost:
- £5845pm as a repayment mortgage
- £4166pm as an interest only mortgage
For this size of mortgage you may wish to speak with a specialist mortgage broker who has experience with larger mortgages.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
What affects the monthly payment figure?
The mortgage term – With a 900K repayment mortgage your payments are worked out to ensure the debt is repaid within the chosen mortgage term. So a mortgage over 15 years is repaid more quickly than one over 20 years. But this would need the monthly payment to be quite a bit higher to achieve this.
The interest rate – With a tracker mortgage your monthly payments could rise and fall depending on the Bank of England base rate. With a fixed rate mortgage your interest rate is set for the agreed period, so your monthly repayments will stay the same even if rates go up or down.
The repayment method – There are broadly two types of mortgage repayment method:
- Repayment (capital and interest)
- Interest only
Interest only is the better option for cheaper monthly payments as there’s no provision for repaying the original debt.
It’s also possible to combine these repayment methods into a hybrid ‘part and part’ mortgage. Your mortgage broker will be able to explain how this works.
Can you get an interest only mortgage?
Yes, interest-only mortgages are available from most lenders. However, they often come with stricter requirements than traditional repayment mortgages. Here’s what you need to know:
Understanding Interest-Only: With an interest-only mortgage, your monthly payments only cover the interest on your loan, not the original amount borrowed (the capital). This results in lower monthly payments, but you’ll still owe the entire mortgage balance at the end of the term.
Lender Requirements: Lenders want to be sure you have a solid plan for repaying the full mortgage amount when the term ends and are not keen on allowing the interest only option.
Not for Everyone: Interest-only mortgages are often considered higher risk by lenders. They are typically more suitable for experienced property investors or those with specific repayment strategies in place.
Should You Consider an Interest-Only Mortgage? Whether an interest-only mortgage is right for you depends on your individual circumstances and your long-term financial goals. A qualified mortgage broker can help you assess your options and explain the potential risks and benefits.
How much does the average mortgage cost?
When you’re thinking about buying a home or changing your current one, it’s helpful to know how much you might be paying each month on your mortgage.
Average repayment figures will change according to property type and location. You may find this guide helpful as it goes in to more detail.
What’s the best mortgage term?
The best mortgage term is the one that fits your situation. Most people opt for a term of 25-30 years at the beginning of their house buying journey and some lenders offer up to 40 years, so called marathon mortgages.
Your choice of mortgage term will be affected by your age now, lender’s have to be careful when mortgages extend beyond age 65, known as borrowing into retirement.
Affordability vs. Total Cost: Shorter terms (e.g., 15-20 years) mean higher monthly payments since you’re paying back the loan faster. However, you’ll save significantly on interest over the life of the loan. Longer terms (e.g., 25-30 years) result in lower monthly payments, but you’ll pay more in interest overall.
Flexibility vs. Stability: Do you prefer having the lowest possible payment, even if it takes longer? Or, are you comfortable with a slightly higher payment in exchange for getting mortgage-free sooner?
Finding the Right Balance: The “best” mortgage term is the one that strikes the right balance between:
- Monthly payments you can comfortably afford.
- Minimising the total interest you pay over time.
- Aligning with your long-term financial goals and life stage.
How do I make my monthly payments cheaper?
If you’re looking to reduce your monthly mortgage payments on a 900K mortgage, there are several strategies you can consider.
Reduce the Mortgage Amount: A little obvious but this is the most direct way. Increasing your deposit (the lump sum you pay upfront) will decrease the amount you need to borrow, resulting in smaller monthly payments.
Extend the Mortgage Term: Spreading your mortgage over a longer period (e.g., switching from 25 to 30 years) will reduce your monthly payments. However, keep in mind that you’ll pay more interest overall over the longer term.
Find a Lower Interest Rate: Getting a better deal on your interest rate will directly lower your monthly payments. Remortgaging (switching to a new mortgage deal) or negotiating with your current lender are ways to potentially secure a lower rate.
Switch to Interest-Only: By switching to an interest-only mortgage, you’ll only pay the interest on your loan, significantly reducing your monthly payments. However, remember that you won’t be paying off the original loan amount, and you’ll need a robust plan to repay it by the end of the term.
Consider a Part and Part Mortgage: This hybrid option combines interest-only and repayment elements. A portion of your payment goes towards the interest, and the rest slowly reduces the original loan amount. This could be a middle ground if a full interest-only mortgage carries too much risk, or is not available.
Use an offset mortgage: If you have any cash savings then these can be used to reduce the mortgage interest charges, lowering your monthly payments. Not every lender offers an offset mortgage but they can be extremely useful and you won’t have to pay any tax on the interest reduction!
While reducing your monthly payments can provide immediate relief, it’s essential to consider the long-term financial impact. Some strategies, like extending the term or switching to interest-only, could mean paying significantly more in interest over time.
How much do you need to earn for a £900,000 mortgage?
A £900,000 mortgage requires a significant income to qualify.
As a general guideline, most lenders use a multiple of your annual salary to determine your borrowing potential, often capping it at around 4.5 times your income.
So for a £900,000 mortgage, you might need a household income of roughly £200,000 per year or more.
If you’re applying with a partner, lenders will combine your incomes, increasing your borrowing capacity.
Are you a ‘professional’?
If you’re a qualified professional – perhaps an accountant, doctor, solicitor, or engineer – special professional mortgages might be accessible to you due to your career’s perceived lower risk and longevity.
A ‘professional mortgage’ caters to individuals in certain occupations that are generally regarded as stable and well-paid.
Careers such as medical professionals, teachers, architects, and surveyors also qualify. You can often obtain more favourable terms, such as higher borrowing multiples or lower deposit requirements.
For a £900,000 mortgage, a qualifying professional may only need an income of £180,000, using an enhanced 5x multiple.
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FAQ
Frequently Asked Questions
Are these figures accurate?
Yes the figures are accurate. However, before considering any mortgage you should always obtain a mortgage quotation from your mortgage broker.
Why would I need a broker?
A mortgage broker’s job is to save you time by searching for the most appropriate mortgage and to then work with the lender on your behalf until the mortgage is approved.
I need to borrow more than £900,000
You may want to first use our mortgage calculator to get an idea of the monthly cost. Then contact a qualified broker who can help you source a larger mortgage.
Will I have to prove my income?
Yes, lenders need to ensure that any mortgage is affordable so they will want to see proof of your income for both employed and self-employed.
What is a part and part mortgage?
This is a repayment method that combines both interest only and repayment together. It is slightly cheaper than a full repayment mortgage. Your broker can explain this in more detail.
How much Stamp Duty will I pay?
The amount of Stamp Duty payable will be confirmed by your Solicitor. In the meantime, you may find our Stamp Duty calculator handy to give you a rough idea.
