How a mortgage calculator can help
Buying a home should be one of the momentous events of your life. You must therefore carefully consider how you finance it. If you set a budget in advance – long before you look at a house – you can avoid falling in love with a house that you can not afford. There, a simple mortgage calculator like ours can help.
The mortgage payment comprises four components, which together are referred to as PITI (pronounced “rope”): capital, interest, taxes and insurance. Many homebuyers are familiar with these costs, but are not prepared for the hidden costs of home ownership. These include Homeowners Association (HOA) fees, private mortgage insurance, routine maintenance, larger service bills and major repairs.
Buying a home should be one of the momentous events of your life. You must therefore carefully consider how you want to finance it. If you set a budget in advance – long before you look at a house – you can avoid falling in love with a house that you can not afford. A simple name for a mortgage calculator like ours can help.
The mortgage payment comprises four components, which together are referred to as PITI (pronounced “rope”): capital, interest, taxes and insurance. Many homebuyers are familiar with these costs, however, are not prepared for the hidden costs of home ownership. These include Homeowners Association (HOA) fees, private mortgage insurance, routine maintenance, larger service bills and major repairs.
The bank mortgage lender can help you monitor your PITI and HOA fees, but not other expenses. Therefore, make sure that the monthly payment he calculates for you is not the absolute maximum of what you can afford. It is important that you have a budget pillow for unexpected or emergency costs. You can also adjust the loan amounts and the payment, the interest rate and the loan term to see how these variables affect your monthly payment. Your specific interest rate depends on your overall credit profile and the ratio of debt to income or DTI. This is the sum of all your debts and the payment of the new mortgage divided by your monthly gross income. In the eyes of the lender, a lower credit score and a higher DTI can make you a riskier lender. The riskier you are on paper, the higher your interest rate is usually.
Deciding how much house you can afford
If you’re unsure of how much of your income to spend on housing, follow the tried and tested 28/36 percent rule. Most financial advisors agree that people shouldn’t spend more than 28 percent of their gross income on residential use (i.e., your mortgage payment) and no more than 36 percent of their gross income on total debt including mortgage payments, credit cards and student loans, medical bills, and the like.
Here is an example of what this looks like:
Jone makes $60,000 a year. That’s a gross monthly income of $5,000 a month.
$5,000 x 0.28 = $1,400 total monthly mortgage payment (PITI)
Jone’s monthly mortgage payments – including principal, interest, taxes and insurance – will not exceed $ 1,400 per month. This is a maximum loan amount of around $ 253,379.
You may be eligible for a mortgage with a DTI ratio of up to 50 percent on some loans, but you may not have enough budget space for other living expenses, retirement, emergency savings and discretionary expenses if you stretch too thin. Lenders do not consider these budget items when approving a loan in advance. You should therefore include these expenses yourself in the efficiency picture of housing.
Once you know what you can afford, you can take the next financially healthy steps. The last thing you want to do is get into a 30 year home loan that is too expensive for your budget, even if the lender is willing to lend you the money.
Mortgage calculator help
An online mortgage calculator can help you predict your monthly mortgage payment quickly and accurately with just a little bit of information. It can also show you the total amount of interest that you will pay over the life of your mortgage. To use this calculator, you need the following information:
Price of the House – This is the dollar amount you would expect for a house.
Down Payment – The down payment is money that you give to the home seller. A decrease of at least 20 percent usually allows you to avoid mortgage insurance.
Mortgage Amount – If you are getting a mortgage to buy a new home, this number can be found by subtracting the down payment from the home price. When you refinance, that number is the balance of your mortgage debt.
Mortgage Term (Years) – This is the length of the mortgage you are considering. For example, if you are buying a home, you can opt for a 30 year mortgage loan, which is the most widely used because it allows for lower monthly payments by extending the repayment period to three decades. On the other hand, a refinanced homeowner can opt for a loan with a shorter repayment period, say 15 years. This is another common mortgage term that a borrower can use to save money by paying less total interest. However, monthly mortgage payments are higher for 15 years than for 30 years, so this can be a bigger burden on the household budget, especially for first-time home buyers.
Interest – Estimate the interest rate on a new mortgage by checking the Bancrat mortgage rate tables near you. Once you have an expected rate (your real rate may vary depending on your overall finances and credit picture), you can plug it into a calculator.
Mortgage Start Date – Select the month, day, and year you want your mortgage payments to begin.