Buying a house is one of the biggest decisions you’ll ever make – and probably the largest purchase you’ll ever make. Therefore, your mortgage payment will likely be your largest monthly expense. Some people aim to find their dream home, creating a checklist of must-haves. There is nothing wrong with this, as it’s important to purchase a home that can adequately accommodate your family. This, however, doesn’t suggest going crazy and buying more house than you can afford.
Using an online calculator for mortgage payment is an excellent way to make sure you stay within budget. A mortgage calculator can estimate your payment, determine affordability, plus there’s the opportunity to play around with different terms. Spending more than you can afford on a house can put a strain on your personal finances and increase your risk of foreclosure. With an online calculator for mortgage payments, you can estimate your monthly payment before stepping foot in a lender’s office. Thus, you have an idea of how much you can spend before a lender approves your application.
How to use a mortgage calculator:
1. Determine a price point. How much do you want to spend on a house? Take a look at your local housing market. What is the average sale price for homes in the area? Knowing this bit of information is crucial to estimating your home loan payment, as mortgage calculators will ask for a home price or loan amount.
2. When do you want to pay off the home loan?
There is no rule that says you have to pay off a mortgage loan over 30 years. A 30 year mortgage is customary, but if you can afford a higher monthly payment, there are financial benefits to choosing a shorter home loan term. You’ll pay less interest over the life of the loan, which essentially reduces how much you pay for the house. Plus, a shorter loan term helps you build equity faster.
3. What is your interest rate?
The mortgage calculator will ask you to input an interest rate. This information is a bit tricky because interest rates vary by lender. Plus, interest rates fluctuate on a day-to-day basis. However, you can estimate your interest rate based on your credit score. Order your personal credit score and then visit any mortgage lender’s website. Based on where your credit score falls, lenders can estimate your interest rate on the mortgage loan. This estimate might be a little off, but within ballpark of your actual rate.
4. How much can you put down?
Unless you’re applying for a VA home loan or a special first-time buyer mortgage program, you will need a down payment when purchasing a house. Mortgage calculators factor in down payments when estimating your home loan payment and determining affordability. For a conventional mortgage loan, you will need at least a 5% down payment.
Using an online calculator for mortgage payment estimates is as simple as entering information in the appropriate fields. Understand, however, that some mortgage calculators are basic and do not factor in other expenses, such as property taxes, homeowner’s insurance and private mortgage insurance. These expenses can increase your mortgage payment by $300-$400, on average. For this matter, after a calculator estimates your mortgage payment, add a few hundred dollars to the estimate to cover other expenses.