Making better financial decisions starts with understanding your mortgage. If you want to make an informed decision about any loan-especially one as significant as a mortgage-you should examine the numbers. You will need a mortgage calculator if you want to make an informed and right financial decision. There are other significant elements to consider while examining your mortgage in addition to the monthly payments. With the help of this Step-by-Step Guide, you can calculate your mortgage.
Calculating Your Mortgage – A Step-by-Step Guide
In addition to the monthly payment, there are other important factors to consider when analyzing your mortgage. These are:
● Various home loan monthly payments compared
● Calculating monthly interest payments and interest over the life of a loan
● Totaling your actual payment over the life of the loan versus the principal borrowed, to find out how much extra you have to pay
Use the mortgage calculator to estimate your monthly mortgage payment, follow these steps, to calculate mortgage:
1. Calculate your mortgage principal
Mortgage principal refers to the amount of the initial loan.
An individual with $100,000 cash can put 20% down on a $500,000 house but will need to borrow $400,000 to complete the purchase. It will require a $400,000 mortgage.
The amount you pay each month will be the same if you have a fixed-rate mortgage. The amount going toward your principal will increase each month, while the amount going toward interest will decrease. (Check out this amortization schedule if you want to learn more about the process.)
2. Determine the interest rate for each month
In essence, the interest rate is the fee a bank charges you for borrowing money. The risk of lending money to someone with a less stable financial situation is lower than it would be to someone with a good credit score, a high down payment, and a low debt-to-income ratio.
A mortgage lender gives a mortgage interest rate each year. Using a calculator, you can calculate the monthly mortgage payment by dividing the annual interest rate by 12 (the number of months in a year). According to this example, if the annual interest rate is 4% then the monthly interest rate would be 0.33% (0.04/12 = 0.0033).
3. Determine how many payments there are
A fixed-rate mortgage is typically a 30 year or 15-year commitment. In order to determine the number of monthly payments, you’ll need to make, multiply the number of years by 12 (the number of months in a year).
On a 30-year mortgage, 360 payments would be required, while on a 15-year mortgage, 180 payments would be required. Once you select your loan type from the list, an online calculator will do the math for you once you enter the specific figures into the formula.
4. How to determine whether you need private mortgage insurance
Most mortgage lenders will add the PMI premium to your monthly payments if you put down less than 20% of the price of the home. PMI is required when you obtain a conventional mortgage, in other words, when you get a “regular mortgage.”
Generally, PMI costs between 0.2% and 2% of your mortgage principal, but you will find the exact cost in your loan estimate.
A homeowner’s PMI can often be waived once their equity reaches 20%.
5. Consider the property tax cost
As part of the monthly mortgage payment, the mortgage lenders will often collect property taxes and deposit them into a specific account, called an escrow account or impound account. Property taxes are paid to the government on behalf of the homeowners at the end of the year.
Depending on the value of your home and local tax rates, you will owe property taxes. Tax season may result in a bill or a refund depending on whether the mortgage lenders estimate the homeowner will owe more or less than the actual amount.
Your local government’s website usually has information about your property tax rate.
6. A homeowner’s insurance policy may be expensive
Mortgage borrowers almost always have to pay homeowners insurance as well, another cost incorporated into monthly mortgage payments.
Homeowners’ insurance comes in eight different types. Typically, high-deductible insurance policies will have a lower monthly premium.
7. Make a monthly payment calculation
Calculate your monthly mortgage payments using our PierPoint mortgage calculator:
If for those who prefer to do their math by hand, you can use the following equation to compute your monthly mortgage payment, excluding taxes and insurance:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
“P” denotes the principal loan amount, “i” represents interest charged each month
The number of months it will take to repay the loan is “n”
Adding property taxes and homeowner’s insurance premiums, if applicable, will help you calculate M (monthly mortgage payment). The fixed costs listed here are not dependent on how much you borrow from the bank, so they can be added to the monthly payment.
Answers to Frequently Asked Questions
Fixed-rate mortgages – what are they?
An interest rate on a fixed-rate mortgage does not change over the term of the loan. You will therefore pay the same amount each month for principal and interest. Due to amortization, the proportion of your payment that goes to interest and a principal will vary each month. Your monthly payment goes more toward principal and less toward interest each month.
Interest-only loans are what?
During the first few years of owning a house, you will only pay interest on the loan. Afterward, you will have to pay principal and interest, so your payments will be higher. Principal payments are not required during the interest-only period, but you can make them if you wish.
Check out the PierPoint Mortgage calculator to get the right mortgage estimation
You should check the official website of PierPoint Mortgage to use their free mortgage calculator and make the best use of this tool to plan your budgets and loan amount you can afford and you’ll have to pay. You can even contact their mortgage experts to get all the answers about your unique mortgage needs. The experts and tools they have available can ease the home loan process for you. Our calculator gives you the freedom to make your own decisions. This means you can calculate your mortgage without the assistance of a third party. And you select our finest lenders and take full advantage of the greatest offers.