In as much as mortgages are usually a fast and effective way of raising funds, if they are not well thought out, they can bring along some pretty severe consequences. It is therefore crucial to do quite a lot of forethought before actually applying for one. A number of issues such as your budget, the monthly payments and the interest rates need to be critically considered. Being a long time loan, paying up a mortgage can get out of hand pretty fast if you do not think about the monthly payments through. It is largely due to this that you will need the best mortgage calculations you can get.
Mortgage calculators are very essential tools for anyone interested in applying for a mortgage. They will not only help you anticipate the monthly payments you are required to make but will also help you know the actual interest amount that you will ultimately pay over the period of the mortgage.
Mortgage calculators are versatile tools whose uses vary greatly depending on what you need to calculate and the details you have at hand. There are quite a lot of thing you can calculate and determine using these calculators some of which include:
The amount you can borrow
One of the first things anyone considering applying for a mortgage needs to consider is the maximum amount they can apply for. There are quite a number of elements that lenders look at to determine the amount to lend you. They consider your credit score, your debts and you annual earnings among other things and use them to calculate the mortgage amount they can comfortably lend you. This is one area in which you are likely to find the mortgage loan calculator an essential tool.
Use the calculator to figure out specific details about the loan you are likely to get. There are just a couple of data you will need in order to make use of the calculator. Some of the info that you will need to have include
• The term of the loan
• The interest rate
• Annual taxes
• Annual insurance
• Gross annual income
• Monthly debt obligations
• The estimated highest monthly mortgage payment
• An estimate of the highest loan amount you are eligible to borrow
You can determine quite a lot of things using this set of information, among them, the amount you can borrow. This is undoubtedly a good way to prepare yourself before actually applying for the mortgage. It helps set your expectations right and you know just the ideal amount to apply for.
Effects of additional payment on your mortgage
It is often a good choice to knock off some years off the term of your loan. This not only cuts the duration over which you have to pay the loan but may actually help save some cash. Making additional payments on your mortgage is one effective way of doing this. This is another area in which you will find a loan calculator instrumental.
You can use the calculator to calculate the amount of impact the extra payment will have on the mortgage. You will however need details such as the original amount of the mortgage, the term, the interest rate, monthly payment, total interest paid on the loan and the amount you will have paid at the end of the loan term. You then feed this data and any additional information to the calculator and you will get the effects of making extra payments.
Monthly payments
Calculating the monthly payments is one of the most common use of mortgage calculators. An amortization calculator will break down all the details of the monthly payments of your mortgage and present them in an easy way to understand. The calculator sorts out the monthly payments into principle and interest payments. This makes it easy for you to understand the amount of the payment goes towards clearing the mortgage and the one that clears the interest.
You can also use the amortization calculator to determine the periods during which most of the monthly payments is applied to the interest and the periods during which most of the payment is applied to the principle.
How much you can save from interest only mortgages
Interest only mortgages are those in which the monthly payment is applied only to the interest and only very little to the principle. The major benefit of this type of mortgage is that it helps lower the monthly payments making it more affordable to handle. While lots of people tend to think of it as an ideal type of loan, it is crucial to fully understand it before getting into it. There is no better way of knowing more about interest only loans than by using a mortgage loan calculator.
You can effectively calculate the amount you are likely to save if you opt for an interest only mortgage using the calculator. It can also help you figure out the amount you will pay monthly. With the right amount of information such as the monthly savings, you can confidently opt for this type of mortgage knowing exactly what you are walking into.
The cost of a property you can afford
Before you begin shopping for a property, it is vital to know how much of a home you can raise adequate funds to purchase. It is only prudent to go for a home that you can comfortably afford without having to struggle to pay the mortgage off. Mortgage calculations can help you narrow down on the property affordable to you. There are however certain things you need to know before using a calculator for this. For starters, you need to understand your budget; the reliable income, the bills and the projected cost of utilities.
With the idea of how much you can raise for making a monthly payment, you can use the mortgage calculator to calculate the approximate amount of the loan you will be paying on a monthly basis.
The term Mortgage could easily be described as a long term loan where the borrower will have to repay the full amount a long with interest on the duration of that loan, the land and the home that is built on it will serve as collateral, but before you buy a home you need to familiarize yourself how mortgage is calculated and how it is paid off.
The factors that determine the mortgage calculations are the size and term of your loan, ‘Size’ refers to the amount of money borrowed and ‘term’ refers to the length of time within which the loan must be fully paid back. There is an inverse relationship between the term of the loan and the size of the monthly payment: longer terms result in smaller monthly payments. For this reason, 30-year mortgages are the most popular mortgage type.
Once the size and term of the loan have been determined, there are four factors that play a role in the calculation of a mortgage payment. Those four items are principal, interest, taxes and insurance (PITI). As we look at these four factors, we’ll consider a $100,000 mortgage as an example.
A portion of each mortgage payment is dedicated to repayment of the principal. Loans are structured so that the amount of principal returned to the borrower starts out small and increases with each mortgage payment. While the mortgage payments in the first years consist primarily of interest payments, the payments in the final years consist primarily of principal repayment. For our $100,000 mortgage, the principal is $100,000.
Interest is the lender\’s reward for taking a risk and loaning money to a borrower. The interest rate on a mortgage has a direct impact on the size of a mortgage payment – higher interest rates mean higher mortgage payments. (For further reading on different types of mortgage interest rates see Mortgages: Fixed-Rate versus Adjustable-Rate.) So, for most home buyers, higher interest rates reduce the amount of money they can borrow, and lower interest rates increase it. If the interest rate on our $100,000 mortgage is 6%, the combined principal and interest monthly payment on a 30-year mortgage would be something like $599.55 ($500 interest + $99.55 principal). The same loan with a 9% interest rate results in a monthly payment of $804.62. (To get an idea of what monthly payment results from a particular principal and interest rate, see this calculator.)
Real estate taxes are assessed by governmental agencies and used to fund various public services such as school construction and police- and fire-department services. Taxes are calculated by the government on a per-year basis, but individuals can pay these taxes as part of their monthly payments. The amount that is due in taxes is divided by the total number of monthly mortgage payments in a given year. The lender collects the payments and holds them in escrow until the taxes are due to be paid.
There are two types of insurance coverage which may be included in a mortgage payment. Like real-estate taxes, insurance payments are made with each mortgage payment and held in escrow until the bill is due. The first type of insurance is property insurance, which protects the home and its contents from fire, theft and other disasters.
Typical down payment ranches for mortgage have always been around 10 t0 25 percent of your total house payment, one of the main factors on where you will land in this spectrum depends on your credit score, but there are also other factors such as whether you are first time home buyer or whether this is your second home and so on. It is also very important to know it works to your advantage to have put down the most down payment that you can afford and save yourself someone on interest payment, that is if you can afford, there are a lot of of different Mortgages so let’s take a look at some of them and the Mortgage calculations that go into them.
VA loans
This type a lone is only reserve for the our military and service people in general, this loans are backed by the government so they do not require down payment or insurance, they are also some of the very best loans out there.
VHA loans
This lone was created to help prop up the middle to lower income middle class secure home loans, one of the main difference between this loan and others are the VHA does not originate loans but rather insure them, and they only require a very small down payment of about 3.5% depending on your credit score.
there some other different Mortgage loan options but they all share some core similarity in their mortgage calculations, and that is the ability to be financially stable enough to afford a sizable down payment, and demonstrate financial responsibility by having a good credit score.
Most of the people are aware of the fact that Mortgage interest calculations are based on compounding interest, but one thing people will fully ignore is the weight of those mortgage interest rates. it is though as our brain found a way to switch from comprehending the 3o year compounding interest rate to our simple one time interest rate charge, that is why people exhibit indifference between 3.5 % 30 year loan and 3.755% 30 year loan unless you take Mortgage calculator and show them how much they are saving or not saving depending on which loan they have.
The biggest misconception people have about mortgage calculation is the importance of putting down as much of down payment as possible, and this is one of the biggest contradiction i observe in this industry; people in general view home ownership to be a long term investment, but in the same token would like to put down as smaller down payment as possible! it would make more sense to buy real state properties out right cash if you can, and if not you should borrow as little as possible because one less dollar borrowed is two dollar saved.