How to Calculate Your Mortgage Payments
Calculating your mortgage payments may seem complicated at first. There are a lot of factors to consider when you start trying to figure out your mortgage. Each person has their own unique circumstances and financial goals to think about as you plan for your future.
Our mortgage calculator can simplify the process and help you take some of the guesswork out of planning for your dream home.
How Do I Use a Mortgage Payment Calculator?
Just enter the home price, your down payment amount, the interest rate, and the loan term, then press calculate and our mortgage calculator does the rest!
You can also use our home affordability calculator to quickly see how much home you can afford with your current salary and down payment savings amount.
Costs Included in a Mortgage Payment
The typical costs included in a mortgage payment are principal, interest, taxes, and insurance.
- Principal: The amount you borrowed for your home and how much you have left to pay.
- Interest: The cost of financing your home.
- Taxes: Property taxes go towards funding local public services.
- Insurance: A homeowners insurance policy that you purchase from a provider to protect your home. Different policies cover different risks such as fires, storm damage, and theft. The exact amount you’ll pay and the specifics of what you’ll need to cover vary by location, policy, and provider.
For instance, you won’t need earthquake coverage if you are buying a home where there are no earthquakes, but you might be required to have flood insurance if your property is in a topographically high-risk area.
Private mortgage insurance is insurance for your mortgage. You pay a certain amount each month to protect your lender in case you default on your loan. PMI is only applicable in certain circumstances, and you don’t necessarily have to pay it for the life of the loan.
Some people also choose to finance their closing costs, rolling those payments into their home mortgage loan.
How a Mortgage Calculator Helps You
Buying a home can be a complex process. There are many decisions that need to be made. What areas are options for your new home to be located in? How large of a house do you need right now? What about in the future? What is the best loan type to get? How long of a term should you set your loan for? How much money will you need to save up for a down payment?
Using a mortgage calculator can help you simplify the process of not just applying for a home loan, but deciding what kind of home you want to try to purchase to begin with. A mortgage calculator can help you determine your price range for a home, how much you need to save for a down payment, and allows you to experiment with various calculations to see how things like different loan terms and down payment amounts will affect your monthly payments.
This can give you a clearer picture of your individual homebuying needs.
Mortgage Calculator Results Explained
- Home Price – The dollar amount you expect to pay for the home itself. This will depend on the size of the home and its location as well as current market conditions.
- Loan Terms – Your loan term refers to how length of your mortgage. Loan terms can be: 10, 15, 20, 25, or 30 years. The length of your mortgage will determine how much interest you pay over the course of the loan as well as how much your monthly payments are.
- Loan APR – A loan APR is the annual percentage rate of your mortgage. in the simplest terms APR is the combination of two things: the interest rate of the loan, plus lender fees and closing costs. Lender fees vary and may include appraisal fees, underwriting fees, processing fees, etc. Closing costs can include closing fees, insurance fees, taxes, and prepaid interest.
The APR reflects the true cost of borrowing, over the course of one year.
- Property Taxes – Property taxes are taxes you pay on your home. The amount you pay is determined by your home’s value and location and can vary year-by-year.
- Homeowners Insurance – An insurance policy that you purchase from a provider to protect your home. Different policies cover different risks such as fires, storm damage, and theft. The exact amount you’ll pay and the specifics of what you’ll need to cover vary by location, policy, and provider.
- HOA Fees – An HOA is a homeowner association. HOA fees are generally required when you purchase a property that is part of a planned community. In a planned community with an HOA, community members pay a certain amount of money either annually or every month in the form of HOA fees. This money is pooled and then used to cover things like maintenance and upkeep of shared spaces.
- Down Payment - This is the initial payment you put toward the cost of your new home. How much do you plan to put down? You could put little-to-no money down depending on your loan type. However, when you enter a higher down payment into the mortgage calculator, it lowers your estimated monthly payment.
How Much Home Can I Afford?
When it comes to determining how much house you can afford there are many factors that you need to consider. Some of the most important are:
- Debt-to-income Ratio: Your debt-to-income ratio, or DTI, is the ratio of the amount you pay to debt every month vs. the amount of monthly income you bring in. These debts can include credit card payments, personal loan payments, and student loan payments.
Mortgage lenders determine your DTI by adding your current debts to your predicted monthly mortgage payments and dividing it by your monthly income. The percentage of DTI accepted by a mortgage lender varies according to the lender’s individual requirements and the type of loan the borrower is applying for. However, it is generally preferable for a borrower’s DTI to be between 36% and 50%.
- Steady Income: Having a consistent and steady income is a key factor in budgeting and saving to buy a home. It will also signal to your lender that you have the means to repay a loan amount that you borrow. There are not usually hard minimum requirements regarding how much you must earn to borrow money, however, lenders do use your DTI to determine your eligibility, so you will need to have enough income to prove that you are in a position to manage your debts.
You can prove your income in a few ways, including through bank statements, pay stubs, or your W-2s.
- Payment History: A history of paying your bills on time lets lenders know you are a reliable borrower. This payment history can include credit cards, personal loans, car loans, and student debt repayment. Your payment history also can act as a signal to you to determine your own ability to manage your home loan, as well as give you a good understanding of how much debt you can take on in terms of a mortgage.
- Down Payment Amount: Deciding how much money you’re comfortable with putting down for the down payment of a house is a critical step in figuring out how much house you can afford. The higher your down payment, the more likely you are to be approved for a mortgage. Putting more money down lets you borrow less money and get better mortgage terms, too.
The minimum down payment requirement varies by loan type, so make sure to shop around and see what options are available to you.
- Credit Score: Your credit score is determined using a set of factors that have both dependencies on your situation and complexities with each other. A change in each factor may raise or lower your credit score. These factors can include, types of credit lines, how old those lines are, how much credit card debt you owe in total, and your recent debt.
Your credit score is a major determining factor in the types and terms of your home loan, so it is an important factor to consider when figuring out what you can afford.
Want to lock-in your mortgage interest rate? Read up on the benefits of a mortgage lock!
How Do I Lower My Monthly Mortgage Payment?
Our mortgage payment calculator can be the first step in understanding where you might be able to lower your costs each month.
There are a few proven ways of making sure you pay less every month:
- Don’t pay for PMI: A down payment of at least 20% will mean not having to pay for private mortgage insurance each month. This is especially important to consider if you are thinking about an FHA loan, where you could be paying mortgage insurance for the entire life of the loan regardless of how large your down payment is.
- Purchase less house: While it may seem obvious to many, a smaller home loan means a lower purchase price and smaller monthly mortgage payment.
- Take out a loan with a longer lifespan: With a longer loan term, your monthly payments will be lower; however, you’ll end up paying more in interest over the additional years.
- Find a lower interest rate: Not only can putting down more than 20% eliminate the need to pay mortgage insurance, but you’ll also end up with a lower interest rate as well.
How Can Mortgage Payments Go Up?
There are several factors that can cause your mortgage payments to increase. The most common are:
You have an ARM: An ARM is designed to have a fluctuating interest rate after the initial fixed period. This means that once the starting rate has expired, your monthly payment can increase based on the market. Factors that can contribute to that increase are things like the Prime Rate or the rate on U.S. Treasury bills.
Your property taxes increase: Property taxes increase for a variety of reasons. Improvements that cause the value of your property to increase will also increase the taxes on that property. This can be home improvements like adding rooms or installing a pool.
It can also include improvement to your neighborhood, like a new school or an influx of businesses that drive up the value of the homes in the area. Sometimes, your local government will also increase your property taxes when they need more funds for the community.
Your homeowners insurance payments increase: Your homeowners insurance can increase for a number of different factors. If you file a claim, your premium may rise. When you make certain improvements to your property these can also increase your payments. For instance, if you increase the square footage on your house, or you upgrade to more expensive appliances in your kitchen, the amount your insurance will have to cover increases, so your payments will likely increase.
Adding risk factors, like a pool, to your home can also cause an increase in your payments, as can external factors, like inflation and construction costs.
What Are the Most Common Types of Mortgages and Which Mortgage Should I Get?
The most common types of home mortgage loans include Conventional loans, FHA loans, and VA loans. Here’s a simple breakdown of each:
- Conventional Loan: A Conventional loan is not insured or guaranteed by the government. This means it has fewer restrictions and allows lenders some flexibility in the terms and conditions they set for their borrowers. Conventional loans typically require a down payment of as little as 3% of the total cost of the home.
- FHA Loan: An FHA loan is a mortgage insured by the Federal Housing Administration. The FHA is a federal government agency that is part of the Department of Housing and Urban Development. FHA loans are backed by a guarantee from the federal government and are often a valuable option for homebuyers who do not qualify for a Conventional loan.
- VA Loan: A VA loan is a mortgage guaranteed by the Department of Veterans Affairs. VA loans are exclusively for active-duty military personnel, veteran servicemembers, and certain military spouses. VA loans carry significant benefits for those that qualify, including lower interest rates, no required down payment, and no monthly mortgage insurance premiums.
Browse our mortgage loan options page for more information on the loan types we offer.
Other Uses for Mortgage Calculator
- Planning to pay off mortgage early – The New American Funding mortgage calculator can be helpful for buyers who are trying to pay their mortgage off early as it offers additional options for calculating details of your mortgage. One of these is an option to enter in additional monthly payments. You can use this option to get an idea of how feasible it would be to pay your mortgage off early and how much you need to make in extra payments to do so.
- Deciding if an ARM is worth it – Using a mortgage calculator can help you determine whether or not an Adjustable-Rate Mortgage is for you. An ARM has an interest rate that can periodically adjust based on the terms of the loan. You start off with a fixed interest rate that is lower than many other home loans, then once the initial period is over, your rate can increase or decrease depending on predetermined guidelines.
You can use a mortgage calculator to compare how much you’ll save initially with an ARM, then compare that amount to a Conventional Fixed-Rate Mortgage. This will allow you to compare your payments and determine whether an ARM is right for your unique needs.
- Find out when you can get rid of private mortgage insurance – If you enter a down payment of at least 20% of the home’s purchase price into the mortgage calculator, Private Mortgage Insurance (PMI) will not be added to your monthly payment. For example, a 20% down payment on a $300,000 home is $60,000.
PMI is required if you make a down payment of less than 20% or if you have less than 20% equity when you refinance; it may be canceled once you exceed 20% equity.
PMI guarantees that the lender gets paid if the borrower defaults on the loan. The PMI calculator defaults to .28 but PMI varies according to your credit score and the size of your down payment, it is usually an annual charge between 0.25% and 1.5% of the loan amount. You may also be able to refinance your home to get rid of PMI. You can use our refinance calculator to get an idea if that option is available to you.
You can use the amortization schedule option on the calculator to show you when you’ll reach 20% equity in your home and be able to get rid of your PMI.
Have more questions? Contact New American Funding today. One of our loan officers will be happy to guide you through the loan application process and help you find which one of our offered products suits your unique needs.
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