Welcome to Mortgage Calculator
It takes more work than you might think to determine if you can afford a home. Looking for homes within a suitable price range is just the first part of the process. Unless you’ve got some rich relatives who don’t mind giving you the full price of the home and allow you to pay it back interest free, you can’t simply divide the total cost of the property by how many months the mortgage will last for to work out monthly loan payments. Interest builds up and adds potentially tens of thousands of dollars to the overall amount you’ll repay. The majority of payments made at the start of the mortgage are going to be interest.
There are lots of variables that influence the monthly repayments for your mortgage, including the loan term length, local property tax rates, and whether you need private mortgage insurance or not. Here are all the things that can alter how much you will be paying in monthly mortgage repayments:
- Interest Rate
The biggest factor that affects monthly repayments on any kind of loan, including a mortgage, is the interest rate. The average interest rate for a 30-year fixed-rate mortgage on Nov. 27, 2013, was 4.33%. If you were to purchase a €200,000 home – which is less than the national average for property prices – you would be spending €993.27 on monthly repayments and the interest alone would equate to €157,587.91. If the interest rate was just 1% higher, it would increase monthly repayments to €1,114.34 with interest being worth €201,161.76.
Getting the best possible interest rate from a lender helps to reduce how much you are paying back each month, along with the total overall amount you pay back across the loan period.
- Loan Terms
The most common kind of mortgage is the 30-year-fixed-rate mortgage. There are still some loans available on shorter terms, including 5, 10, 15, 20, and 25-year loan mortgages. Getting a short term loan means having to pay higher monthly repayments, but it also decreases the total amount you pay over the life of the mortgage. Let’s go back to our €200,000 mortgage on a 4.33% interest rate, the monthly repayments on a 15-year loan would be €1,512.67 – which is a fair bit higher – but your interest payments would only be worth €72,280.12. It also means paying off the loan in half the time, which frees up a lot of resources.
- Private Mortgage Insurance
Unless you’re able to offer the 20% down payment or pick up a second mortgage loan, you are likely going to need to purchase private mortgage insurance for your mortgage. Private mortgage insurance, or PMI, protects the mortgage lender in the event that you default on your loan. The cost of this personal mortgage insurance can vary widely, depending on the loan provider and the price of the property. You could be paying as much as a few hundred dollars every month on PMI, on top of the principal and the interest on the mortgage. This is something else to keep in mind when considering a mortgage.
- Property Taxes
Many lenders let you pay for your yearly property taxes when making monthly repayments on the mortgage. There are some lenders that will even require you to do this. The estimated yearly payment will be broken down to a monthly amount, which is put into an escrow account. The lender will pay the taxes for you with the money in the account at the end of the year. How much this costs fluctuates if your city or county increases the tax rate or if the home is re-evaluated and it has dropped in value.
- Property Insurance
Just as you need to have insurance on a car, you need to have home insurance to protect your home. It keeps you and the loan lender safe in the event of a disaster such as a fire. Most lenders will let you include the property insurance for your home into the monthly mortgage repayments. As is the case with PMI, the monthly amount of insurance goes into an escrow account with the bills paid for you on your behald.
- HOA Fees
Certain homes – particularly town houses and condominiums – are parts of a larger housing community that features amenities such as fitness centers and community pools, and lawn care. If you purchase a home that is part of a housing community, you’ll need to pay the appropriate homeowner’s association fees. How much these fees cost depend on the community that you are living in, but they can be worth up to €100 - €200 each month.
Use a Mortgage Calculator to Work Out Mortgage Repayments
Now you know how much you have to consider to work out the true cost of a mortgage, you may be wondering if there is a simple way to work it out. The good news is that mortgage calculators do exist and they are great for this kind of thing. Most mortgage lenders and financial institutions offer their own versions of mortgage calculators.
A mortgage calculator makes it easier to calculate the monthly payments you’ll be making on your mortgage. They use a range of loan terms, interest rates, and loan amounts to work everything out for you. Some have more advanced features as well, including amotization tables and being able to calculate property taxes, property mortgage insurance, and homeowners insurance.
Remember that taking the cost of a home and dividing it by how long the mortgage is doesn’t give you an accurate representation of your monthly payments. Take the time to use a mortgage calculator to get a better picture. They can’t give you an exact number because of how many variables there are, but they do give you a more accurate prediction of what you can expect to have to pay back.