When you’re buying a house you need to know how much your monthly mortgage payment will be so you can plan your finances.
If you’re wondering how to calculate a mortgage payment, it involves more than just the principal cost of the property. You also need to take into account interest rates, taxes, and other costs.
Here are five steps you need to follow to estimate mortgage payment amounts for your potential new home.
1. Decide on Your Downpayment
When you take out a mortgage you need to make a downpayment on the value of the property. This is typically 20% of the total value.
Work out how much you can afford for the downpayment as a first step. This will reduce your average mortgage payment as you’ll pay for part of the cost of the property in advance. The remaining amount of the property price will help to determine your monthly repayment.
2. Determine Your House Price Budget
Knowing how much you can afford as a downpayment will help you to determine your property budget. If you have a downpayment of $100,000, you will be able to buy properties worth up to $500,000 with a downpayment. You will then need a mortgage of $400,000 to cover the rest of the cost.
You may decide to borrow less than the maximum amount and set your budget lower to make sure you can make the monthly payments and cover the other associated costs.
3. Calculate Mortgage and Property Costs
Your mortgage repayment includes not only the loan amount but also interest payments to your lender. You will need an estimate of the interest rate and loan term to calculate the overall payment. This will depend on your age and credit score.
You also need to take into account extra costs like property taxes and homeowners insurance. If you have a downpayment of less than 20%, you will need to pay for private mortgage insurance, which will add to the cost.
4. Use a Mortgage Calculator
Once you have worked out how much you need to borrow and the extra costs, you can use an online mortgage payment calculator to estimate your monthly payments. This saves you from having to work out the calculation manually and ensures you have an accurate estimate.
Using a monthly mortgage payment calculator will help you to see whether you should adjust your downpayment or loan term to ensure you can keep on top of your bills. If you intend to become a landlord, check out this article to learn more about avoiding trouble paying the mortgage.
5. Get a Mortgage Preapproval
You can also apply to a mortgage lender for preapproval. This will give you a clearer idea of how much you will be able to borrow, taking into account your income, expenses, and credit. In that way, you will be able to make a more definite decision on how much house you can afford to buy based on your finances.
Calculate Costs to Estimate Mortgage Payment
There are several different costs that go into a monthly mortgage payment. Once you have an idea of your downpayment, principal amount, interest rates, and the term of the loan, you can start to estimate mortgage payment amounts for different properties.
Using a mortgage calculator or getting a mortgage preapproval will give you a better idea of how much you can afford to pay for your new home.