Understanding Mortgage Calculators and Monthly Mortgage Payments

Mortgages truly are a great invention. The truth is that most people, even those who are worth a great deal of money, do not have the cash readily available in order to purchase a home without getting a home loan, or mortgage. Preparing yourself to find the right mortgage and using a few tools to get ahead of the game will help you find a financial product to truly meet your needs.

The Tools

There are a number of tools that you can use in order to help you to obtain your mortgage easily. One of the most useful tools is a mortgage calculator. Mortgage calculators are a wonderful way to discover exactly how much you will have to budget for your monthly bills, as well as how much you will be paying in interest over the life of your loan.

Using a Mortgage Calculator

There are a number of different types of mortgage calculators, and with a bit of searching you can find a calculator that will suit your specific need. One way to use a mortgage calculator is to help you to determine how much your monthly payments will be. This is generally called a simple calculator and is useful in a number of ways.

Say, for instance, that you are looking to purchase a home that costs $235,000. You will be using $20,000 from your IRA as a down payment, which means that you need to borrow $215,000 from your mortgage lender. With an interest rate of 6.7% over thirty years, you would be asked to pay about $1,387 a month with a fixed rate loan.

Another way to use a mortgage calculator to make things easy is to use one that is set to help you to discover exactly how much you can afford to spend on a house.

33% Of Your Income

Did you know that when you purchase a home, you are only supposed to spend 33% of your monthly income on your mortgage, insurance, and tax payments? This may not seem like a lot, but it actually surprises some people when they do the math, to discover that they can afford a much more expensive home than they originally believed they could. A person, or couple, who brings home $5,000 a month can afford to spend $1,650 on a monthly mortgage payment. And a family who has a monthly income of $3,500 can spend $1,155 on their mortgage payment. This is a valuable thing to know, but what does that translate to when it comes to the price you can afford to spend on a home?

What Kind of Monthly Payment Can I Afford?

Many people who are purchasing a home for the first time often make the same mistake: they go house hunting before they discover exactly how much they can afford to spend on a home. This often results in heartache when the prospective buyers discover that they can not afford to own the home that they have fallen in love with. Before you go house hunting, you can get a step ahead of the game by looking to a mortgage calculator.

There are some mortgage calculators that can help you to discover exactly how much you can afford to spend per month on a payment. It then, in turn, translates that into how much you can afford to spend on a home. Often it is much more than you would ever imagine. Say, for instance, that you bring home $6,000 a month in income. You pay $600 for your car payments and $200 for credit card payments. Once you figure in your property taxes and insurance, and add the interest rate in, the calculator will tell you that you can afford a monthly mortgage payment of $1,144, and that you can afford a mortgage of $177,288.

Getting Ahead of the Game

But what does it accomplish when you use a mortgage calculator in order to figure out what your monthly payments will be? To begin with, it gives you a starting point. If you use a calculator that is set to help you discover how much you can afford to get for a loan, you can help your real estate agent to narrow down the homes that they have to offer to just the homes that you can afford. This will save time, and a lot of frustration, as you will be able to look at the homes that you may be able to own rather than the homes that you can't afford to purchase.

Discovering what your monthly mortgage payment will be is also a good way to help you set a budget up, even before you get into your new home. Having a budget, especially when you are just moving into a brand new home and accumulating new bills, is an excellent way to ensure that you are able to continue to afford your house. It may also help you decide what kind of loan you need to get. For example, an interest-only loan will allow you to make smaller payments each month. A calculator can help you realize exactly how much you can afford so you can get the right kind of loan at the outset.

Other Calculators

There are a number of other different kinds of mortgage calculators that you can utilize in order to help you to get ahead of the game. If, for instance, you choose to get an adjustable rate mortgage loan, or ARM, there are some mortgage calculators that can help you discover, on a monthly basis what your loan will be. There are also calculators that exist in order to help you to know if it will be easier for you to rent or to buy, and if your investment in your home will be a beneficial one. There are hundreds of different reasons to use a mortgage calculator, but never forget the way that they were first used: to discover exactly what your monthly mortgage payments will be.