You’re well underway in the house-hunting process and you’ve reached the point where it is time to crunch those numbers. When it comes to how to calculate your mortgage, there are a few key considerations to keep in mind.
We all can’t be math wizards and luckily, thanks to mortgage calculators and guides like these, you don’t have to be.
While you don’t want to underestimate your mortgage payments and the additional costs, you also need to make sure you know the full financial picture of the house you’re hoping to purchase.
If you’re new to mortgage math, this mortgage calculation guide will give you an easy-to-follow-formula for how to calculate your mortgage payments.
How to Calculate Your Mortgage 101
To use a mortgage calculator you will first need a few key loan details to get started.
You’ll usually use a mortgage calculator to figure out your estimated monthly mortgage payment but there are several different calculators available to help you estimate different types of mortgages and payments.
When it comes to how to calculate your monthly mortgage payment, you’ll want to start with the purchase price of your home. You then should know your estimated down payment. In addition, if your lender gave you a ballpark interest rate, you can include that as well.
Different Loans Have Different Calculations
There are different calculators for different types of mortgages. A mortgage payment on a 15-year loan will be calculated differently than a mortgage on a 30-year loan, for example.
A 30-year loan will have twice as many payments. Although you may end up paying more in interest over the life of your loan, your monthly payments will be lower with a 30-year loan because the term is longer.
On a 15-year loan, your payments will be higher because you have a shorter loan term. There are fewer payments to pay off your mortgage.
You may also have calculators for different mortgages such as bridge loans or jumbo loans. Each loan should be calculated with their own terms input into the calculator so you get the most accurate payment information. There are also interest only mortgages as well as reverse mortgages. A good idea might be to read a guide to mortgages to get familiar with the various mortgage flavors out there.
Know Your Financials
Interest is one of the biggest factors that can change your mortgage payment. If you have a low credit score and a high debt to income ratio, your credit score will likely be lower. This means your interest will be higher.
Your down payment will also affect your mortgage payments. If you are putting down 10%, you will also need to calculate private mortgage insurance or PMI. Private mortgage insurance is typically added to any loan where less than 20% is put down.
In addition to a mortgage calculator, keep in mind any other costs associated with owning your home including insurance, utility bills, taxes, and assessments if you have any. This will help you know your overall housing expenses.
If you’re ready to calculate your mortgage and take the next step towards homeownership, visit the mortgage calculators and budgeting tools section to try out a calculator.