The Money Advice Service has developed a number of excellent calculators to help people budget effectively. I am sure we can agree that these calculators are extremely useful, helping us to understand loan repayments, how much we can afford, and how to budget properly. However, is there a budget calculator missing from the Money and Pension Service? Read on to discover everything you need to know to search for it.
Why Are Payment and Budgeting Calculators Important?
Using payment and budget calculators are vital because they help you to figure out how much you can afford. Whether taking out a mortgage or a vehicle loan, you want to be sure that you can afford the repayments every month.
Some calculators also help you to figure out how much money you can put into savings, or how long it is going to take you to pay off your debt, for instance. There are then calculators that can help you to plan out important financial decisions and changes in your life, ensuring that you’re not overpaying for things and that you can continue to afford your monthly payments.
These calculators provide families with the easiest and most effective way of managing their funds so that they do not find themselves in grave financial difficulty, which is the last thing anyone wants!
What Sort of Calculators Are Available via the Money and Pension Service?
Before we delve deeper into the possible missing piece of the puzzle, let’s give you an overview of some of the different calculators that are available. Examples include the following:
- Redundancy pay calculator
- Quick cash finder
- Credit card calculator
- Baby costs calculator
- Car costs calculator
- Divorce and separation calculator
- Savings calculator
- Loan calculator
- There are many more to peruse when you follow this link: https://www.moneyadviceservice.org.uk/en/categories/tools-and-calculators#
That is just a handful of some of the different calculators that are available. As you can see, these calculators are exceptionally helpful in enabling you to budget effectively for life’s events.
From ensuring you can pay your credit cards off to figuring out how much a divorce will cost, there seems to be a calculator for everything today. However, we have noticed that there is one imperative calculator that does not appear to be on-site as a separate calculator. So, let’s take a look…
The Missing Calculator: Switch Point Calculator
One calculator that we think that the Money and Pension Service needs to add to its repertoire separately is the Switch Point Calculator. This calculator is important because it helps you to determine when to make the switch to a fixed-rate mortgage in accordance with your own budget.
What Is a Fixed-rate Mortgage?
Before we go into the mechanics of this calculator and how it works, we’re going to explain what a fixed-rate mortgage is. This is a home loan that has an interest rate that does not change throughout the life of the loan or for a fixed term. Basically, this means your interest and your monthly payment will remain the same.
This can help you to have more control over your payments, making it easier to budget effectively. Nevertheless, it is still critical to realize that there can be fluctuations in your mortgage payments, though, should your homeowner’s insurance rates or property taxes change plus as yet unforeseen costs.
This switch point calculator is especially important when interest rates are at historic lows as a result of the Global Financial Crisis and now the Coronavirus pandemic.
How Does the Switch Point Calculator Work?
With this calculator, you would add the following:
- The current variable home loan balance is $
- Current variable Interest rate (per annum) in %
- Repayment terms in years
- Current Monthly Loan Payments in $
- Acceptable Monthly Loan Payment Increase
Once you have entered these figures, the calculator will figure out when you should make the switch to a fixed-rate mortgage.
Example
- Current variable home loan balance in $ – $500,000
- Current variable Interest rate (per annum) in % – 3.45%
- Repayment terms in years – 30 years
- Current Monthly Loan Payments in $ – $2231
- Acceptable Monthly Loan Payment Increase – $592
Using the Switch Point Calculator
It appears very straightforward, doesn’t it? All you need to do is enter the figures that have been mentioned above and click the “submit” button.
Once you have done this, the switch point calculator is going to determine the fixed interest rate point when you should be making the switch to a fixed interest rate mortgage. We will explain in the next section why this is imperative.
Nevertheless, it is all about managing your budget in a proactive manner so that you and your family don’t experience mortgage stress. It is a simple calculator, but one that is essential, especially for mortgage borrowers who are on a very tight budget.
Why Is This Calculator So Important?
You may be wondering why we believe this calculator is a missing feature of the Money and Pension Service. Well, when we take out financial products, we are often guilty of thinking about the financial implications for the here and now, but we don’t think about the future.
However, planning your future mortgage payments and ensuring they fit within your budget is vital. We will take a look at why this is the case below.
Avoiding Mortgage Stress
The main reason why this calculator is so vital is that it can help you to avoid mortgage stress. Mortgage stress can have a detrimental impact on families, both emotionally and financially. Rather than allowing this to take over your life, budgeting effectively can make sure you do not get to this place.
Two of the main factors that result in mortgage stress include a lack of quality monetary advice and poor risk management. This is why it is critical to ensure that families seize the initiative and seek advice early by Ringing The Money Advice Service (0800 138 7777). The Money Advice Service staff or professionals that they refer you to will undoubtedly help you along with their range of excellent guides and calculators.
Making Sure You’re Able to Afford Your Mortgage in the Future
A lot of people are unaware of how much repayment increase they will be able to afford on their mortgage in the future. This is especially true with the financial uncertainties created by the Coronavirus pandemic. The cost of your mortgage will change as time goes on.
This depends on the nature of the loan you take out, but the switch point is something that a lot of people do not discuss or look into when taking out a mortgage. Instead, they simply look at what the repayments are going to be in the near future.
Your Money Advice Service or referred financial planner should definitely speak to you about repayment increases and help you to work out what you can afford. The majority of financial planners will ensure that you are able to figure out how much you can afford in terms of repayment increases prior to you thinking about making the change to a fixed-rate mortgage.
The challenging thing about this is that rates for fixed-interest loans tend to be higher when compared with variable interest rate loans, although this can differ depending on where the economic cycle is worldwide and within the country in question.
This presents the majority of borrowers with an issue because they do not want to volunteer to increase their repayments because it will mean that they have fewer funds available every month.
The consequence of this is that families can possibly end up being trapped in a spiral of interest rates, and they do not figure out the correct switch point for their budget, i.e. when the time is right for them to make the change to a fixed interest rate mortgage.
People tend to simply follow the increase in the interest rates, rather than managing their budget in a proactive manner. If you have an experienced financial planner, he or she will tell you about the switch point calculator, and they will make sure that you use it to determine the right switch point for you.
Why Don’t Banks Offer This Calculator to Their Customers in Negative Equity?
You may be wondering why this calculator is not already offered by banks considering it is so important at a time of record low interest rates. Nevertheless, the reason for this is very straightforward. With variable-rate interest rate loans, the banks use other systems for their total loan portfolio.
This is a graphic from Freelancers’ Life Planning Documents which shows graphically what a Switch Point Budget Planner does: 
If you are in negative equity, banks want you to remain on a variable-rate interest loan because the value of their security property, your house, is less than the loan if you had to sell it to clear the debt. The switch point calculator approach is a move towards making housing loans a financial product with an individual risk profile. This is your budget’s ability to cope with increased costs.
Lifting Your Income
There is, of course, the other solution which is lifting your income which when coupled with a budget switch point calculator approach will ultimately produce a better result. These issues are covered in this Amazon eBook:
Negative Equity – What the Banks Don’t Tell You: How to Take Control of Your Home Loan Repayments and Budget which can be purchased from Amazon in the UK by clicking here
If you are considering lifting your income post Coronavirus by freelancing part-time there is an infographic about it here or by visiting the Amazon Author’s page here
Final Words
So, there you have it: an insight into the switch point calculator and why this is such a critical budget tool for homeowners to understand in the years post Coronavirus era with global record low-interest rates.
We would like to know whether or not you are able to find the Switch Point Calculator. Please use the contact form below or visit our new Facebook page.
The purpose of this article is not only to make you search for the Switch Point Calculator in the Money and Advice Service’s list of calculators but to realize the following in the post Coronavirus world:
The Importance of Getting Advice Early
This website is about why you need to get advice early. It provides general information only and is not a recommendation to act in any particular way other than to seek advice early. In the United Kingdom, the starting place always should be to Ring The Money Advice Service (0800 138 7777). Their advice is free and impartial.
However, if you feel that you want to independently pay for advice from a financial planner The Money Advice Service has guidance on how to select a financial planner which you can read by following this link https://www.moneyadviceservice.org.uk/en/articles/choosing-a-financial-adviser here and if you believe you want specific mortgage advice and are considering getting a mortgage adviser you should read this article here: https://www.moneyadviceservice.org.uk/en/articles/choosing-a-mortgage-shop-around-or-get-advice.
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