Lump Sum Debt Reduction Calculator
This free lump sum debt reduction calculator can be used to figure out how much money you might be able to save, and the number of months that are eliminated, by making a one-time, lump sum payment. The calculator uses the current debt owed, annual interest rate on debt, monthly payment, and the lump sum, to calculate both the dollars and time saved by making this one-time payment.
How Much Mortgage Payment Can I Afford
As you think about your mortgage payments, its important to understand the difference between what you can spend versus what you can spend while still living comfortably and limiting your financial stress. For example, lets say that you could technically afford to spend $4,000 each month on a mortgage payment. If you only have $500 remaining after covering your other expenses, youre likely stretching yourself too thin. Remember that there are other major financial goals to consider, too, and you want to live within your means. Just because a lender offers you a preapproval for a large amount of money, that doesnt mean you should spend that much for your home..
What Are The Types Of Mortgages
In addition to there being multiple mortgage terms, there are several common types of mortgages. These include conventional loans and jumbo mortgages, which are issued by private lenders but have more stringent qualifications because they exceed the maximum loan amounts established by the Federal Housing Finance Administration .
Prospective homebuyers also can access mortgages insured by the federal government, including Federal Housing Administration , U.S. Department of Agriculture , U.S. Department of Veterans Affairs and 203 loans. Minimum qualifications for these mortgages vary, but they are all intended for low- to mid-income buyers as well as first-time buyers.
How To Account For Taxes And Recurring Expenses
Accounting for recurring charges like PMI and HOA fees requires a little more work, but even these arent very difficult to calculate. You can find the total cost of recurring expenses by adding them together and multiplying them by the number of monthly payments . This will give you the lifetime cost of monthly charges that exclude the cost of your loan.
The reverse is true for annual charges like taxes or insurance, which are usually charged in a lump sum, paid once per year. If you want to know how much these expenses cost per month, you can divide them by 12 and add the result to your mortgage payment. Most mortgage lenders use this method to determine your monthly mortgage escrow costs. Lenders collect these additional payments in an escrow account, typically on a monthly basis, in order to make sure you dont fall short of your annual tax and insurance obligations.
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What Else Is Included In Your Monthly Payment
Principal and interest make up the bulk of your mortgage payment. On some loans youll only need to pay principal and interest to your lender each month, but your loan might also involve taxes and insurance. You should note that regardless of whether taxes and insurance are included in your loan, lenders typically combine principal, interest, taxes and insurance when determining how much house they will approve you for.
Calculate The Cost Of Borrowing
When you buy a home, you already know that you’re going to pay a lot of interest over the life of the loan. However, you may not be prepared for just how much you are going to have to pay. In many cases you could buy your house two or three times over with the amount you end up paying back to your loan.
A good mortgage calculator like the ones we offer at MortgageCalculator.org can help you determine your monthly payment and your total interest payments. However, looking at the total interest you pay may seem too abstract. For instance, if you pay 5 percent on a $250,000 30-year fixed loan, you will end up paying $233,139.46 in interest alone. Since this amount is spread out over 30 years, it may be harder to contextualize the impact of.
Understanding exactly how much you pay in interest each month and each year rather than cumulatively over several decades can help make the amount seem more concrete and immediate. Breaking it down further by every thousand dollars of your mortgage can help you how it all adds up.
On that same $250,000 loan with 5 percent interest, you would pay $5.41 in interest each month for every $1,000 of the loan. You would pay $64.91 each year for every $1,000 of the loan.
Is there something else you could or should have invested in which would have offered better returns?
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How To Claim Your Deduction
Eligible homeowners can claim the mortgage interest tax deduction on Schedule A of their annual tax returns. Schedule A accompanies Form 1040 or 1040-SR .
To find out how much mortgage interest you paid during the year, look at your mortgage interest statement, IRS Form 1098. Your lender will send one copy of this form to you and one copy to the IRS. YouÃ¢ll receive it in January or February each year.
IRS Publication 936, updated annually, contains all the information most taxpayers will need to determine their eligibility for the mortgage interest tax deduction. Taxpayers with complex situations may need to ask a Certified Public Accountant for help.
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Get A More Accurate Estimate
Get pre-qualified by a lender to see an even more accurate estimate of your monthly mortgage payment.
How much house can you afford? Use our affordability calculator to estimate what you can comfortably spend on your new home.
Interested in refinancing your existing mortgage? Use our refinance calculator to see if refinancing makes sense for you.
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Your debt-to-income ratio helps determine if you would qualify for a mortgage. Use our DTI calculator to see if you’re in the right range.
- Award Ribbon VA mortgage calculator
Use our VA home loan calculator to estimate payments for a VA loan for qualifying veterans, active military, and military families.
When Mortgage Payments Start
The first mortgage payment is due one full month after the last day of the month in which the home purchase closed. Unlike rent, due on the first day of the month for that month, mortgage payments are paid in arrears, on the first day of the month but for the previous month.
Say a closing occurs on Jan. 25. The closing costs will include the accrued interest until the end of January. The first full mortgage payment, which is for February, is then due March 1. For example, lets assume you take an initial mortgage of $240,000 on a $300,000 purchase with a 20% down payment. Your monthly payment is $1,077.71 under a 30-year fixed-rate mortgage with a 3.5% interest rate. This calculation only includes principal and interest but does not include property taxes and insurance.
Your daily interest is $23.01. This is calculated by first multiplying the $240,000 loan by the 3.5% interest rate, then dividing by 365. If the mortgage closes on Jan. 25, you owe $161.10 for the seven days of accrued interest for the remainder of the month. The next monthly payment, the full monthly payment of $1,077.71, is due on March 1 and covers the February mortgage payment.
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What Factors Affect How Much Interest You’ll Pay On A Mortgage
While you may see headlines about how interest rates have climbed or fallen, the rate you read about in a news story isn’t necessarily the one you’ll receive on your mortgage. As with other types of loans, the rate you receive can depend on your creditworthiness and the loan’s specifics.
With mortgages, the following can affect your interest rate:
Tips For Buying An Affordable Home
- Set aside funds for home maintenance and emergencies. Unexpected expenses are par for the course for homeowners, so youll want to make sure you can cover them without taking on debt. Whether its a broken appliance or a pipe that springs a leak, home repairs always seem to happen at inconvenient times and wind up costing more than youd expect. State Farm recommends setting aside 1 percent to 4 percent of your homes value for emergency repairs each year.
- Plan for income changes. If you or your partner or co-borrower wants to switch up the employment situation after moving, youll want to make sure to factor that into your budget. You dont want to wind up taking out a mortgage that you can no longer afford.
- Shop around to save on homeowners insurance. Comparing mortgage offers isnt the only way to save. Youll also want to solicit quotes from multiple insurers to make sure youre getting the best deal.
- Stay within your means. A lender might be willing to offer you a larger mortgage than youre comfortable with or able to pay. Dont buy a house just because the bank tells you you can afford it only commit to monthly payments that actually fit into your overall budget.
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Ways To Save Thousands In Mortgage Interest
Its common knowledge that youre going to pay interest when borrowing money. When it comes to home buying, you may not realize just how much interest you will be paying.
Say youre approved for a $300,000 30-year mortgage with a 4% interest rate . If you make your monthly payment as required, then you’ll wind up paying a total of $215,609 in interest over time. Thats almost as much as your loan principal!
It may sound scary at first, but we have a secret. Did you know there are ways to save money on mortgage interest? It’s true. Read on to learn five of the most popular ways to accomplish greater long-term and overall savings.
What Can Cause Your Interest Rate To Change
If you get an adjustable-rate mortgage , your interest rate and monthly payment can change.
With these loans, your interest rate is set for an initial period of three, five, seven or ten years. After that runs out, your rate rises or falls based on the market index it’s tied to.
Adjustable-rate mortgage loans typically come with rate caps, limiting how much your rate can increase initially, annually and over the life of your loan. These caps can vary by lender, so it’s important to compare a few different companies if you’re considering an adjustable-rate mortgage.
The Federal Open Market Committee sets the short-term interest rate – the federal fund rate – that banks use to borrow money. The federal fund rate doesn’t directly affect long-term rates such as mortgages, but the two tend to move in the same direction.
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How To Account For Closing Costs
Once youve calculated the total principal and interest expense on your mortgage, factoring in closing costs or fees will be straightforward. Since closing costs are paid in full when you close on the loan, you can simply add them to your overall loan cost without using any long formulas. Some examples of upfront closing costs include the following:
- Mortgage lender fees
- Third-party mortgage fees
- Prepaid mortgage costs
While there may be other categories of upfront fees, the process for calculating them remains the same: Just add them to the total cost of the mortgage loan. Keep in mind that this will exclude any added monthly expenses paid in escrow, like taxes or homeowners insurance. Our next section explains how to factor in monthly expenses.
Summary Of Current Mortgage Rates
Mortgage rates were higher this week
- The current rate for a 30-year fixed-rate mortgage is 5.89% with 0.7 points paid, an increase of 0.23 percentage points from a week ago. This week last year, the 30-year rate averaged 2.88%.
- The current rate for a 15-year fixed-rate mortgage is 5.16% with 0.8 points paid, 0.18 percentage points higher week-over-week. The 15-year rate averaged 2.19% a year ago this week.
- The current rate on a 5/1 adjustable-rate mortgage is 4.64% with 0.4 points paid, up by 0.13 percentage points from a week ago. The average rate on a 5/1 ARM was 2.42% this week a year ago.
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How Much Should I Spend On A House
An affordability calculator is a great first step to determine how much house you can afford, but ultimately you have the final say in what youre comfortable spending on your next home. When deciding how much to spend on a house, take into consideration your monthly spending habits and personal savings goals. You want to have some cash reserved in your savings account after purchasing a home. Typically, a cash reserve should include three months worth of house payments and enough money to cover other monthly debts. Here are some questions you can ask yourself to start planning out your housing budget:
The Structure Of Mortgage Interest Rates
On any given day, Jones may pay a higher mortgage interest rate than Smith for any of the following reasons:
- Jones paid a smaller origination fee, perhaps receiving a negative fee or rebate.
- Jones had a significantly lower credit score.
- Jones is borrowing on an investment property, Smith on a primary residence.
- Jones property has 4 dwelling units whereas Smiths is single family.
- Jones is taking cash-out of a refinance, whereas Smith isnt.
- Jones needs a 60-day rate lock whereas Smith needs only 30 days.
- Jones waives the obligation to maintain an escrow account, Smith doesnt.
- Jones allows the loan officer to talk him into a higher rate, while Smith doesnt.
All but the last item are legitimate in the sense that if you shop on-line at a competitive multi-lender site, such as mine, the prices will vary in the way indicated. The last item is needed to complete the list because many borrowers place themselves at the mercy of a single loan officer.
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How Much Interest Will I Pay On My Mortgage
If youre looking to buy a home, you can use this calculator to determine how much interest you will pay on your mortgage over time. In the example below, well look at a 30-year mortgage for $300,000, with a fixed interest rate of 5.0%.
Total Loan Amount: $300,000
Loan Term : 30 years
Interest Rate: 5.0%
Assuming you pay off the mortgage over the full 30 years, you will pay a total of $279,767.35 in interest over the life of the loan. That is almost the original loan amount!
If we compare that to a 4.0% interest rate, the total interest paid would be $215,608.52. That is over $60,000 of a difference in total interest, so it definitely pays to shop around for the best interest rate on your mortgage.
How Do You Compare Loan Offers
In any loan scenario, you have to make underlying assumptions such as:
- If you are likely to remortgage the loan again.
- When you are likely to remortgage.
- Where you think interest rates are headed.
- If you think you will sell the home soon.
- If rates head higher and your rate resets well above the initial offer, will your wages be enough to cover payments?
Look Beyond the Monthly Payment
Its important to consider the overall mortgage costs, not just the monthly payment amount. Borrowers will find interest-only payments affordable. However, compared to a full repayment mortgage, you immediately build equity in your home. This bring you closer to home ownership, stability, and grants you further life flexibility. In contrast, interest-only payments do not build equity. It does not provide financial cushion which helps protect you against shifting market conditions.
If one loan amortises and the other does not, then you have to look at how much equity you build in a home. This is a key factor in determining value. Most people also do not want to pay mortgages for the entire lifetime, or until they hit a tough patch and risk foreclosure.
Example Loan Comparison from a Reader
The key to being able to accurately compare mortgage offers is to only adjust a single variable at a time. This way you can easily see the differences between offers, instead of trying to compare apples to oranges.
The example below is based on a question from one of our users named Dan.
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How Long Can You Lock In A Mortgage Rate
Locks are usually in place for at least a month to give the lender enough time to process the loan. If the lender doesnt process the loan before the rate lock expires, youll need to negotiate a lock extension or accept the current market rate at the time.
Even if you have a lock in place, your interest rate could change because of factors related to your application such as:
- A new down payment amount
- The home appraisal came in different from the estimated value in your application
- There was a sudden decrease in your credit score because you are delinquent on payments or took out an unrelated loan after you applied for a mortgage
- Theres income on your application that cant be verified
Talk with your lender about what timelines they offer to lock in a rate as some will have varying deadlines. An interest rate lock agreement will include: the rate, the type of loan , the date the lock will expire and any points you might be paying toward the loan. The lender might tell you these terms over the phone, but its wise to get it in writing as well.