How Do I Calculate My Mortgage Payment?

Overview

It is important to know how much mortgage you can afford before shopping for a new house. Whether you are looking to buy your first house or your third, be sure to learn the proper methods when calculating your future mortgage payments to ensure that you don't find yourself strapped for cash in the months and years ahead.

Step 1

Know the Type of Loan You Have All mortgage payments are not created equal. In the old days, the bank gave you a loan with a fixed interest rate for a certain amount of time, and you were locked into that specific payment for the entire life of your loan. That's not always the case anymore. With an increase in the popularity of interest-only loans, adjustable rate mortgages (ARMS) and other types of creative financing, many homeowners have no idea how much their payments are going to be from month to month and year to year. The first step to calculating what your mortgage payment is going to be is to fully understand what type of loan you have signed on for. Your best option: a 25- or 30-year fixed loan that will hold your base payments throughout the entire loan term. Of course if your taxes and insurances are included in your loan payment, they may increase over time, but your base mortgage payment will stay the same.

Step 2

Know How Much You Can Afford Before shopping for a mortgage--or a house for that matter--know your limits. Most financial experts agree that your mortgage payment (including principal, interest, taxes and insurances) should not exceed 35 percent of your gross monthly income. Other, more conservative estimates cap the limit at 25 to 28 percent of your gross monthly income. Once you know how much money you have per month to put toward your new mortgage, it's time to calculate how much loan you can take out to meet that level.

Step 3

Get a Quick Idea With This Simple Trick One of the fastest ways to estimate how much money you can borrow for your new house is to take your annual gross income and divide it by about one-fourth to one-third. Now, if you make $100,000 a year you'll likely have about $25,000 to $35,000 to spend annually on mortgage payments. That's roughly $2,000 to $3,000 per month for your mortgage. If you take out a 30-year fixed loan at say, 7 percent interest, you will likely be able to spend between $200,000 and $300,000 on your new home. Of course there are a lot of other variables to consider when calculating a mortgage including your other debt, which leads us to our next step ...

Step 4

Using Online Mortgage Calculators Online mortgage calculators are a great tool to use to determine how much mortgage you can afford, plus what your payments would be using different loan terms and interest rates. Quick and easy to use, most allow you to choose a mortgage amount, term and interest rate, plus tack on funds for taxes, insurances and PMI fees. Within seconds they'll tell you what your payments will be every month to allow you to tweak your mortgage demands until they better meet your available funds. More sophisticated software programs can also account for your other debt and even changes in your income over time in order to help you calculate the mortgage amount you can best live with.

Step 5

Talk to a Mortgage Broker As you will see, once you begin looking into mortgage options, there are a lot of different types of loans to choose from, and the type you end up with with have a direct effect on your monthly payments--now and in the future. The best way to calculate your new mortgage is to sit down with a qualified mortgage broker to discuss the many loan options and payment schedules available to today's home buyer.

How Do I Calculate My Mortgage Payment? by creditdebtconsolidating.com