The Home Loan Expert Loan Calculator
It’s important to keep your finances in order. And for homeowners, determining mortgage payments, property taxes, and insurance costs are crucial for balancing the budget.
The Home Loan Expert’s mortgage calculator is an indispensable tool for ensuring that you are staying on top of your finances. It can be used for estimating your monthly mortgage payment, private mortgage insurance, interest, taxes, homeowners insurance, and more.
How Does a Mortgage Calculator with Taxes and Insurance Work?
The nice part about having a mortgage calculator at your disposal is that all of the math is done for you. It’s easy enough to calculate your interest rate payment on your own, but if you aren’t mathematically inclined, there’s nothing wrong with relying on a calculator designed for the task!
Interest Payment. Simply multiply your interest rate by the amount you have borrowed and divide by 12.
Example: Let’s say that you have borrowed $250,000 and that your interest rate is 3.5%. The formula for calculating your interest payment would look like this: 250,000 X .035 (3.5%) = 8,750. 8,750 ÷ 12 = $729.16. Your monthly interest payment in this hypothetical scenario is $729.16.
If you are mathematically inclined, however, here is the formula for determining your entire monthly mortgage payment assuming that you have a 30-year mortgage.
- M = Total monthly payment
- P = Total amount of your loan
- I = Your interest rate (monthly percentage)
- N = Number of months to pay off your mortgage (360)
Here is the formula: M = P [i(1=i)^n]/[(1+i)^n-1]
Don’t worry if this formula looks like an alien language. That’s the reason mortgage calculators were invented!
How to Use a Mortgage Calculator.
Now that we have a newfound appreciation for mortgage calculators, let’s look into how to use one. All of the following factors will be used to determine your monthly mortgage payments by entering the appropriate data in the boxes on the mortgage calculator.
Home Price. You might think this is as straightforward as looking at the price of the home and comparing it to your monthly income, but there is a bit more to it than that.
What you should be looking at is your DTI (debt to income ratio). If your DTI is too high, there is a good chance that lenders won’t consider you for a home loan. The way to determine your DTI is to add up all monthly debt payments: credit card, alimony, car note, utilities, projected mortgage payments, etc. Take this number and divide it by your monthly pre-tax income. Multiply this number by 100 to get a percentage. This is your DTI.
Example: Let’s say that your monthly debt is $2,500 and that you bring in $4,200 a month (pre-tax). $2,500 ÷ $4,200 = .5952380952380952. .5952380952380952 X 100 = 59.52%.
The above example gave us 59.52%. This is quite a few points higher than what lenders would be comfortable with. 43% DTI is generally considered the cutoff limit for home loans. 36% or less is considered ideal.
Down Payment. Your ability to put down a down payment will greatly influence your monthly mortgage payment and could also be a determining factor in determining if you are able to afford the home you are considering for purchase.
One way to cut down on your monthly mortgage payment is by putting down a 20% or more down payment on the home. Lenders typically insist on PMI (private mortgage insurance) if the down payment on the property is 20% or less. The PMI is usually around .6% to 1.9% of the original loan amount. PMI can often be done away with if people choose to refinance somewhere down the road.
Example: If the home you are purchasing costs $250,000 and you put down a 10% down payment of $25,000, your monthly mortgage payment would be $1,689. With a 20% down payment, your mortgage would be $1,466. Of course, these are very rough estimates and can be fine-tuned with more precise data.
Mortgage Rate. There are many factors that determine the mortgage rate that you qualify for. The lowest mortgage rates usually go to people with a credit score of 740 or higher. This shows the lender that lending you money is much less of a risk than loaning someone money with a credit score of 450.
Another factor in determining mortgage rates is the down payment you are able to make on the house. In the eyes of lenders, the lower the down payment, the higher the risk. The more you are able to put on your down payment, the better off you will be in the long run. There are other variables to consider, but many are beyond your control (such as the overall economy and housing market).
Property Tax. Property taxes vary from state to state. For the past few years, New Jersey has had the distinction of having the most expensive property tax in the country. As of this writing, New Jersey’s property tax is a whopping 2.47%.
The state of Hawaii has the lowest property tax in the country with .27%. However, the median price for a home in Hawaii is over half a million dollars.
For the most part, you don’t have a say in determining what property taxes are, but it is possible to file an appeal to have your property taxes lowered. However, when using the mortgage calculator, it is best to input the property tax rate you will most likely pay.
Loan Term. Loan terms are typically between 10 and 30 years. There are pros and cons to both. A 30-year mortgage term allows for lower monthly payments, but you will be spending more on interest over time. A 15-year mortgage will have much higher monthly payments, but you will pay less in interest and own your home in half the time.
Assumptions Section (Taxes, Insurance, HOA). Under the “Assumptions” section of our mortgage calculator, you will see “taxes” and “insurance,” as well as HOA fees. If you are interested in seeing how much you pay in taxes and insurance, simply enter the pertinent data into the boxes provided and click on the color-coded graph to the right. This will show you what those expenses are per month.
How can The Home Loan Expert Help?
We have decades of experience in the mortgage industry and our caring, dedicated professionals make the loan process simple and efficient.
We will work tirelessly on your behalf to ensure your mortgage is in keeping with all of your needs and goals. If you would like to learn more about us and what we can do to help facilitate your real estate purchase, contact us today. We’re happy to help.