How To Lower Your Mortgage Payments
There are a few ways to lower your monthly mortgage payments. You can reduce the purchase price, make a bigger down payment, extend the amortization period, or find a lower mortgage rate. Use the calculator to see what your payment would be in different scenarios.
Keep in mind that if your down payment is less than 20%, your maximum amortization period is 25 years. As for finding a lower mortgage rate, its a good idea to speak to a mortgage broker for assistance.
Mortgage Insurance Vs Life Insurance
Mortgage life insuranceis an optional insurance policy that you can purchase from your mortgage lender that protects your mortgage balance. If you pass away, a death benefit will be paid to your mortgage lender to pay off some or all of the mortgage balance. If you get a critical illness, disability, or lose a job, youll receive a payout that helps cover some or all of your monthly mortgage payments. In all of these cases, your lender is the one that receives the insurance payouts.
With life insurance, youre purchasing a policy with a beneficiary that you get to choose. You can also choose to purchase a policy with a certain payout benefit, rather than having it tied to the balance of your mortgage.
Mortgage life insurance premiums are based on the borrowers age and the balance of their mortgage. Premiums are charged as a certain rate per $1,000 of mortgage balance. Mortgage life insurance in Canada is completely optional. A lender cant force you to purchase mortgage life insurance, no matter your down payment. However, if you make a down payment less than 20%, your lender can require you to purchase mortgage default insurance.
Mortgage life insurance can be easier to obtain, but having a potential insurance benefit that gradually decreases as you make mortgage payments means that the benefit gets smaller while your insurance premiums stay the same.
Most Affordable Markets For Homebuyers
According to 2020 data fromZillow Research, record low mortgage rates have helped to boost affordability for potential homeowners. The table below shows the top 10 most affordable markets to live in for December 2020 and is based on a typical home value of no more than $300,000 . The market and share of income spent on a mortgage may fluctuate based on the current mortgage rate, the typical local homeowner’s income and the typical local home value.
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Conforming Loans Vs Non
Conforming loanshave maximum loan amounts that are set by the government and conform to other rules set by Fannie Mae or Freddie Mac, the companies that provide backing for conforming loans. A non-conforming loan is less standardized with eligibility and pricing varying widely by lender. Non-conforming loans are not limited to the size limit of conforming loans, like a jumbo loan, or the guidelines like government-backed loans, although lenders will have their own criteria.
The Major Part Of Your Mortgage Payment Is The Principal And The Interest The Principal Is The Amount You Borrowed While The Interest Is The Sum You Pay The Lender For Borrowing It Your Lender Also Might Collect An Extra Amount Every Month To Put Into Escrow Money That The Lender Then Typically Pays Directly To The Local Property Tax Collector And To Your Insurance Carrier
- Principal: This is the amount you borrowed from the lender.
- Interest: This is what the lender charges you to lend you the money. Interest rates are expressed as an annual percentage.
- Property taxes: Local authorities assess an annual tax on your property. If you have an escrow account, you pay about one-twelfth of your annual tax bill with each monthly mortgage payment.
- Homeowners insurance: Your insurance policy can cover damage and financial losses from fire, storms, theft, a tree falling on your home and other hazards. If you live in a flood zone, you’ll have an additional policy, and if you’re in Hurricane Alley or earthquake country, you might have a third insurance policy. As with property taxes, you pay one-twelfth of your annual insurance premium each month, and your lender or servicer pays the premium when it’s due.
- Mortgage insurance: If your down payment is less than 20 percent of the home’s purchase price, you’ll probably be on the hook for mortgage insurance, which also is added to your monthly payment.
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Mortgage Calculators Cant Predict Your Interest Rate
Similar to how mortgage calculators assume youre going to put 20% down, they also assume your interest rate will be low and they automatically populate the best rate available. This is misleading.
Depending on your credit score, employment history, home location, down payment, loan amount, loan term, interest rate type , and loan type , this can greatly vary from person to person.
To use an example, lets say that we increased the interest rate of the Zillow house profiled above from 3.5% to 4.5%, only one percentage point higher. This small adjustment increases your monthly payment from $1,956 to $2,162, making your monthly payment $206 more a month.
So while a small change in a mortgage interest rate might not seem like a big deal, in some cases, it can increase your payment by hundreds of dollars. Be careful.
What Are Mortgage Statements
A mortgage statement outlines important information about your mortgage. Mortgage statements are usually an annual statement, with it being sent out by mail between January and March rather than once every month. You may also choose to receive your mortgage statement online.
For example, TD only produces mortgage statements annually in January, while CIBC produces them between January and March. If you have an annual mortgage statement, it will usually be dated December 31. You may also request a mortgage statement to be sent.
Information on a mortgage statement are up to the end of your statement period and include:
- Current interest rate
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Is Your Mortgage Payment Calculator Free
Yes, our mortgage payment calculator is free. In fact, all of our calculators, articles, and rate comparison tables are free. Ratehub.ca earns revenue through advertising and commission, rather than by charging users. We promote the lowest rates in each province offered by brokers, and allow them to reach customers online.
Does Mortgage Payments Include Property Tax
Many mortgage lenders require you to payproperty taxesthrough your lender in your regular mortgage payment, with your lender then paying your municipality. This is because failing to pay your property taxes can lead to your municipality placing a lien on your property, which will be placed in the front-of-the-line before your lender’s claim on your home.
If you pay your property taxes through your lender, then your lender will estimate an amount that would need to be paid every month in order to cover the total amount of property taxes for the entire year. If the amount that the lender collected is not enough to cover the actual property tax due, then the lender will advance the due amounts to the municipality and charge you for the shortfall.
Your lender may charge you interest on the amount of any shortfall. The lender may pay you interest if you have overpaid and have a surplus. Property tax bills or property tax notices are required to be sent to your lender, as failing to send it may mean the collected property tax amounts are not accurate.
Some lenders allow you to pay property taxes on your own. However, they have the right to ask you to provide evidence that you have paid your property tax.
If paying property taxes on your own, your municipality may have different property tax due dates. Property tax might be paid one a year, or in installments through a tax payment plan. Installments might be monthly or semi-annually.
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Impact Of New Cmhc Rules On Borrowers
Gross/Total Debt Service Ratios
The higherdebt service ratiorequirements will allow more borrowers to participate with higher leverage and take out larger mortgages relative to their income. Debt service ratios measure how much of your income will be spent on paying the mortgage, bills associated with your home and payments on other debt.
The lower credit score requirement of 600 will allow borrowers who have missed bill payments or have a limited credit history to participate in the CMHC insurance program and be eligible for a downpayment as low as 5%.
How To Use The Mortgage Payment Calculator
To use the calculator, start by entering the purchase price, then select an amortization period and mortgage rate. The calculator shows the best rates available in your province, but you can also add a different rate. The calculator will now show you what your mortgage payments will be.
Our calculator also shows you what the land transfer tax will be, and approximately how much cash youll need for closing costs. You can also use the calculator to estimate your total monthly expenses, see what your payments would be if mortgage rates go up, and show what your outstanding balance will be over time.
If youre buying a new home, its a good idea to use the calculator to determine what you can afford before you start looking at real estate listings. If youre renewing or refinancing and know the total amount of the mortgage, use the Renewal or Refinance tab to estimate mortgage payments without accounting for a down payment.
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What Amortization Period Should I Choose
Here are some general guidelines for choosing an amortization period for your mortgage:
- Most mortgages in Canada have an amortization period of 25 years. Unless you require a longer amortization period due to cash flow concerns, or you can afford to shorten your amortization, a 25 year amortization works well in most cases.
- Choosing a shorter amortization means that youll be paying off your mortgage principal balance faster. This will lower your lifetime interest cost, but it will also result in a higher monthly or bi-weekly mortgage payment.
- Insured high-ratio mortgages cannot have an amortization that is over 25 years. If you choose an amortization period of over 25 years, you must make at least 20% down payment.
How Much House Can I Afford With A Conventional Loan
Conventional loans are popular for borrowers with credit scores of at least 620 and DTI ratios of 45% or less. Some conventional loan programs allow down payments as low as 3%, but you can avoid mortgage insurance if you make at least a 20% down payment. Conventional lenders often assess mortgage insurance to cover their losses if you default, and its usually part of your monthly payment.
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What Does A Mortgage Calculator Calculate
So, how much home can you actually afford? A mortgage calculator will provide you with an estimate of your monthly mortgage payments. It will also break down your monthly payments into what youll pay for:
- Principal and interest
- Homeowners insurance
It also helps you analyze certain important features of your mortgage, including:
- The size of mortgage youll need based on the home price and your down payment.
- How much youll actually pay for the house versus the principal borrowed.
- The amount of interest youll pay monthly and how much youll end up paying over the life of the loan.
These two factors will aid in comparing the different home loans so that you can choose the one with the most favorable terms.
A mortgage loan calculator crunches the numbers on your behalf to help you figure out how much home you can afford. It gives you a look at the numbers behind a loan allowing you to choose a mortgage that works for you.
What Is Mortgage Insurance
Mortgages with adown paymentof less than 20% are required to be insured due to the higher level of risk that they carry. This insurance protects the mortgage lender should you default on the mortgage. Mortgage default insurance does not protect you or help you cover mortgage payments.
The largest provider of mortgage loan insurance in Canada is the Canada Mortgage and Housing Corporation , which is owned by the Government of Canada. Some mortgage lenders allow you to go through a private mortgage insurer instead, such as Canada Guaranty or Sagen.
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How Much Can I Afford
How much you can afford to spend on a home in Canada is most determined by how much you can borrow from a mortgage provider. That is, unless you have enough cash to purchase a property outright, which is unlikely. Use the mortgage affordability calculator above to figure out how much you can afford to borrow, based on your current situation.
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So Expecting A Mortgage Calculator To Be Accurate Is Kinda Hopeless Then
Well, they can definitely give you a false sense of hope. Although if you get down the road very far and actually apply for a loan, soon enough, the lender will pour tepid water all over your hopes of scoring the home that that magic mortgage calculator on the internet assured you you could afford: Lenders arerequired to provide a loan estimate form to borrowers within three days, and those include taxes and insurance amounts . Following the Great Recession, up until which lenders were handing out loans to people the way Oprah gives away Caribbean vacations, the chances nowadays of closing a sale, only to find yourself way in over your head, are greatly reduced.
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Details Of Texas Housing Market
Texas is the largest state by size in the contiguous U.S., taking up roughly 261,800 square miles. Its the second-largest state by population with an estimated 28.9 million residents.
Most of Texas population resides in Houston, San Antonio, Dallas, Austin and Fort Worth, which are the five largest cities in the state. Overall, Texas has three of the 10 largest cities in the U.S. by population. Texas also has one of the healthiest housing markets according to SmartAssets Healthiest Housing Markets study. The study was based on stability, affordability, fluidity and risk of loss. Texas number one spot is good news for potential homeowners, as it shows that its one of the best states to buy a home in. The overall median home value in the state is $200,400, according to the Census Bureau.
If youre hoping to live in Houston, youll likely have to have a bigger budget, as the median home value in Austin is $312,300, based on Census data. Austin has had one of the highest home value increases in the past few years, thanks to a number of tech companies moving to the capital city. Thinking about San Antonio? Median home values are lower there, at about $136,800 for a home in the seventh-largest city in the U.S.
Td Bank Mortgage Affordability
Before you get a mortgage from TD Bank, it is important to know how TD calculates your mortgage affordability. TD takes into account the following factors:
- The location of your future home
- Whether your future home is a detached home or condo
- Your household income
- Your down payment
- Your monthly bills and expenses including groceries, transportation, shopping, and insurance.
- Your monthly debt payments to loans and lines of credit including credit cards, car loans, student loans, and leases.
Your location and property type are used to provide estimates for your potential property taxes, utilities, and condo fees.
TD calculates your mortgage limit using the current qualification rate and a maximum gross debt service ratio of 39% and a maximum total debt service ratio of 44%. This means that your mortgage payment, property tax, heating costs, and half of your condo fees cannot take up more than 39% of your gross income. In addition, this amount plus your total debt payments cannot take up more than 44% of your gross income.
Another factor in determining your mortgage affordability is your down payment. According to TD, home buyers must have a minimum 5% down payment for homes worth less than $500K. For homes between $500K and $1M, home buyers must have at least 5% for the first $500K and 10% for the remaining amount. For homes worth more than $1M, home buyers must have a minimum 20% down payment.
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Local Economic Factors In Texas
Its no mystery what industry Texas dominates. With well over $100 billion generated each year by oil and gas extraction, Texas is the nations leading energy producer. In addition to growing industry jobs, Texas also increased its total population by 2.7 million from 2010 to 2016. In comparison, the largest U.S. state, California, only increased by 2 million residents in the same time period. Texas December 2020 unemployment rate was 7.2%, according to the Bureau of Labor Statistics, compare this to a national average of 6.7% during that time.
Texas economy remains robust thanks to some of the largest public and private companies calling Texas home. On top of industry giants such as ExxonMobil, Valero and Phillips 66, Texas is also host to AT& Tâs headquarters as well as Sysco, Halliburton and American Airlines.
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Why Use A Mortgage Calculator
Using a mortgage payment calculator helps you establish a budget before buying a home. Budgeting helps you head off problems and keeps you from getting in over your head financially. If your home purchase will increase your housing costs, for instance, you need to determine where youll find the extra money. What expense can you cut to make your home purchase affordable?
A mortgage payment calculator reveals the different components of a prospective mortgage payment. Those include more than just principal and interest. Youll be paying property taxes and homeowners insurance, and possibly other costs like private mortgage insurance premiums, homeowners association dues and flood insurance charges.
However, a simple mortgage calculator does not incorporate all homeownership costs. Maintenance and repairs often surprise first-time buyers. You can estimate potential expenses with one of two formulas: either 1% of the home price per year, or $1 per year for every square foot of space. To make costs more predictable, consider purchasing a home warranty. Additional hidden costs might include higher utility charges, lawn and yard services, higher cleaning costs and new furniture.
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