Are you ready to buy a house? We’ve previously talked about what you should save to buy a house but what if you have saved and you want to know how much your monthly payment will be? That’s where a mortgage calculator comes in. There are mortgage calculators online that will estimate certain inputs for you but you might be wondering what those inputs mean.
What Makes Up a Mortgage Payment?
A mortgage payment is the payment on the loan that was borrowed from the lender. Unless you are paying cash in full, you will have to borrow the balance. You will typically borrow from a bank, but there are other ways to pay for the balance, like borrowing from a hard money lender, securing owner financing or contacting the Mafia. Ok, I was joking on that last one, but I just wanted to make sure you were still paying attention.
There are several components to a mortgage payment but the two basic components are principal and interest. The principal is essentially the purchase price, or borrowed amount on the home. The interest is the payment you make for borrowing the money. A loan will amortize, or pay off, over its life. The payments at the beginning of the loan term will be mostly interest but as the loan is amortized and the principal shrinks, the loan payments will be mostly principal.
Taxes and Insurance for Homes
It is absolutely essential to protect your home with insurance and so most mortgage calculators will want you to estimate the insurance payment to factor that into your mortgage payment. There is also a possibility that you will have to pay private mortgage insurance or PMI, if your down payment puts you at less than 20% equity. According to the Mortgage Insurance Companies of America, average PMI will run you about 50 to 80 dollars a month on a home priced at $159,000. You also need to remember that you will have to pay property taxes as a homeowner and that could affect your monthly payment if the mortgage payment makes prepaid tax payments.
Interest Rates and Credit
Before you even start shopping for a home, you should check your credit report and make sure that everything is accurate. There are a variety of factors that go into a bankers decision to loan to you but you don’t want to get denied because there is erroneous negative information on your credit report. The interest rate that you get is directly influenced by your credit worthiness, as determined by your credit score and what’s on your credit report so be sure to check it.
Using a Mortgage Calculator
The best part of using a mortgage calculator is the ability to play around with the numbers and test different home prices, interest rates and loan terms. Now that you know what goes into the calculation, try it yourself!
Have you used a mortgage calculator to estimate your monthly payments?