A mortgage calculator can give you a better idea of how much your house payment could be. This is critical because it will help you decide if the house is something that you can afford before submitting an offer on it. The following are some ways to calculate your mortgage payment using a mortgage calculator:
1. Determine how much you can afford to spend on your house.
The first step is to figure out how much money you can spend on buying a home. Take a look at your savings and calculate your income. Add up all the extra money that you can invest in buying a home, like other savings, investment and retirement accounts. If possible, try to estimate how much you will use as repairs and maintenance of the house as well as other expenses that come with owning a home such as electricity or water bills, Internet connection cost, cable TV subscription fee and so on. These are not include in the payment of a mortgage so do not forget to include them when planning for it.
The amount that you can spend on your house should leave you with enough money for all of these other expenses and still leave you with some savings in case things go wrong in the future.
2. Find a mortgage calculator
After you have determined how much you can feasibly spend for your house, you can now figure out the best way to pay for it. You need a mortgage calculator to help you make a good decision on what kind of house that you can afford before going house hunting. There are online mortgage calculators that you can use or find one in your computer’s program so that it is readily available when needed.
3. Know what your interest rate is
Your interest rate is not as simple as other figures such as the cost of a gallon of gas or the cost of plane tickets, but it is still critical to know how much you are paying each month in interest charges. As you put more money down, the less you are buying your monthly interest rate.
4. Understand your amortization schedule
Your mortgage payment includes more than the interest portion of your loan payments. It also covers the principal portion of your loans; however, most people do not realize this until they use a mortgage calculator. A simple input into a mortgage calculator will show you exactly how long it will take to pay off your loan. The Front End Ratio is the most common method use to calculate your monthly mortgage payment from year to year. The following is an example of this formula: [annual interest rate x 12] / [number of months in the year being calculated (12)]. This calculation will show you the amount you would have to pay on your mortgage payment each month for a 5 or 7-year fixed-rate mortgage with a 15% or 20% down payment.
This method is typically use to calculate your first mortgage payment. If the calculation shows that you would pay more than 20% of your monthly income on the mortgage, this method should researched further. To calculate a mortgage payment using this formula, divide the annual interest rate by 12 and multiply by the number of months in a year (12). Take an example of John and Beth who have a 5-year fixed-rate mortgage at 15% down payment with a 10% interest rate. They move into their house and are able to pay their monthly mortgage payment of $1337 for the first three years that they own their home.
First, John and Beth would take the annual interest rate (15%) and divide it by 12 to find their monthly interest rate.
$15,000 = $1337 x 12 = $ 156
John and Beth would then multiply the annual interest rate by the number of months in a year for a 5-year fixed-rate mortgage (12) to get their monthly interest payment.
$156 x12 = $1872 [math]
This shows that they would pay an extra $72 each month ($1337-$1872=$72). If they can spread out this cost over the first three years of their 5-year fixed-rate mortgage, it should be manageable.
5. See if refinancing is right for you
It is easy to see whether or not refinancing is right for you when using a mortgage calculator, but doing this manually can be challenging and time consuming. It is critical to understand that refinancing is not right for everyone, so you need to make sure that it is the right option for you.
6. Check your ability to afford a large mortgage payment
There are times when we get so caught up in buying a house that we forget we are taking on a significant amount of debt. Mortgage calculators will take your monthly payments and show you how large they can be, but it is critical to remember this does not include many other regular bills such as utilities or car payments. If you cannot live comfortably with your current monthly payments before buying a home, then it might not be the best time for you to invest in real estate.
Other expenses to consider
So, you are ready to start calculating your monthly payments, but first you need to calculate a few variables:
Annual interest rate
This is the total interest due on your loan. The annual interest rate, expressed as an annual percentage rate (APR) will range from a low of 3% to a high of 30%. To find this figure, you need to know exactly how much money you are borrowing on your mortgage.
To calculate this payment, it is best to start with each monthly payment that you make and add the principal portion up until the final installment; then subtract what is owed on your previous mortgage and divide by 12 months. In other words, interest-only payments are a portion of the total payment that does not include principal.
Debt to earnings (DTEE) ratio
This is a commonly used ratio that shows how much of your income you can use for principal and interest before you start borrowing too much on your mortgage. In order to find this number, divide the annual interest rate by your gross income and then multiply by 100.
Adjusted gross income (AGI)
To calculate your AGI, you need to add all of your income figures together up to the AGI limit that is set by the IRS. For 2011 and 2012, this limit is what would be your average standard deductions if you did not itemize deductions.
All of these items will help you to calculate a mortgage payment, but they can be confusing since each month’s payments change depending on how much you have made in total. For example, if your rental income has increased by $10,000 in the last year, then your AGI should go up by that amount to match the new payment. If this does not affect how much you make a month, then you are using the same amount of money and paying the same amount every month. If that is the case, then it might be easier for you to use a mortgage calculator and do everything all at once.
After you have calculated your monthly payments by using your mortgage calculator, then you need to compare your numbers to the ones that are listed on the loan. There are a few different ways in which you can do this and it can help see if there are any changes that need to made.