Calculate a Mortgage
Payment
When you decide it is time
to purchase a home you will need to know how to
calculate a mortgage payment. No need to be
a math genius, but you will need to do your research. There
are a wide variety of ways to calculate your payment.
Basically all you need to know is how much money you will
want to borrow and your credit rating.
First you will
need to take into consideration what type of mortgage you would
like. Based on your credit, income and how long you would like
to have your mortgage you may choose a balloon mortgage,
adjusted rate mortgage (ARM), or a fixed
mortgage. Each choice is
significantly different, so knowing what matches your financial
needs is a must!
A balloon
mortgage is one that you pay over time, then after a period of
five or seven years you have to make a large payment (the
balloon reference), or re-finance the loan. In an ARM, your
interest could change daily. One day you could be paying 5% and
in a month you may be 8%. The rates could just keep climbing
higher and higher. A fixed rate mortgage may be higher than an
ARM at first, but it does not change. The 7% you pay in year
one, will be the same 7% you pay in year 8, year 10 or year 15
etc.
How much money
do you have? Usually your loan payment for a home will be based
on 25-43% of your income. It is safe to have a mortgage payment
that is around 1/3 of your monthly income. For example, if you
bring home $1200.00 per month, you will generally not want to
pay more than about $400.00 per month on a home
loan.
Do you know
what your credit rating is? Your credit rating can generally be
summed up as poor, fair, good, or excellent. Lower interest
rates are associated with good or excellent credit. Poor or
fair credit means you will probably have a high interest rate.
The interest rate is usually calculated based on two different
types of simple interest loans.
In a simple
interest loan your interest is accrued daily. So day one of the
month you owe $350 plus $10. Day two of the month you would owe
$350 plus $20. This would continue daily, until you make your
payment. Once you make your payment you would have a new
principle (the amount that you borrowed) to calculate your
interest rate from. This would mean you would be paying less
interest each time you make a payment.
Most mortgages
are based on the simple interest version, but the interest is
calculated monthly. Whether you pay your note early or on time
will not matter because the payment is the same. When
you calculate
your payment you need to
make sure you know if your interest is daily or
monthly.
Whichever way
you choose to calculate a mortgage payment,
the important thing to remember is research. While a basic
mortgage calculator may give you what your payment will be, you
may want to look at advanced models as well. The more advanced
the calculator, the more you will know about your mortgage and
how it can serve you.
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