How Does A Mortgage Work
A mortgage is a secured loan that is collateralized by the home it is financing. This means that the lender will have a lien on your home until the mortgage is paid in full. After closing, youll make monthly paymentswhich covers principal, interest, taxes and insurance. If you default on the mortgage, the bank will have the ability to foreclose on the property.
Use Our Calculator To Estimate Your Monthly Payment
Most people need a mortgage to finance a home purchase. Use our mortgage calculator to estimate your monthly house payment, including principal and interest, property taxes, and insurance. Try out different inputs for the home price, down payment, loan terms, and interest rate to see how your monthly payment would change.
Mortgage Calculator Results Explained
To use the mortgage calculator, enter a few details about the loan, including:
Canadian Home Mortgage Qualification Tips
If you are a first-time home buyer looking for the right price on a home in Canada, the real estate market in most metropolitan areas continues to be priced in such a way that it remains affordable to those making an average wage or above.
The resiliency of the market place over the past several years combined with a fairly good economy have created the type of environment that should encourage you to participate by buying.
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Using The Mortgage Qualifying Calculator
The Mortgage Qualifying Calculator is designed to be easy to use and largely self-explanatory. Just fill in the various fields with the information requested. Start by choosing if you want to base the calculation on your annual income, the purchase price of the home you’re looking at or the monthly payment you can afford. Then work down the page entering your other information and the calculator will figure out the other two values for you and display them in gray.
For example:
- Enter your annual income and the Mortgage Qualifying Calculator will determine the maximum purchase price you can afford and the associated monthly payment.
- Enter the purchase price and the calculator will tell you the income you need and the monthly payment required. Or,
- Enter the monthly payment you’re thinking of and the Mortgage Qualifying Calculator will tell you the income needed to qualify and the home purchase price that will cover.
Then go down the rest of the page entering the information requested. Your answers will be displayed in gray at the top of the page. Click “View report” for a detailed breakdown and an amortization report.
How Can I Choose The Best Mortgage
If you’re like most people, a mortgage represents the largest long-term debt obligation you’ll ever have. Choosing the right mortgage can set you up for success and help minimize the overall costs of buying the home. Here are four tips to help you shop for the best mortgage:
1. Determine how much you can afford. A home is a large purchase, and you may wonder how much you can realistically afford. Try various scenarios on a mortgage calculator to find out what your optimal loan might look like. No matter how much loan you qualify for, keep in mind that you don’t have to borrow the entire amount.
2. Compare mortgage loan term lengths. A 30-year fixed-rate mortgage is the most popular loan type, but it’s not your only option. Use a mortgage calculator to see how various loan terms impact your monthly payment, the amount of interest you’ll pay, and the total cost of the home. Remember, a longer loan term means lower monthly payments, but you’ll end up paying more interest over the life of the loan. This chart compares how monthly payments and total interest differ for a fixed-rate $250,000 loan at 4%, depending on the loan term:
| Loan Term | |
|---|---|
| $53,735.41 | $303,735.60 |
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How Much Interest Will I Pay On My Mortgage
The exact amount of interest youll pay depends on the mortgage rate youre on. This can change over time. For example, you might be locked into a low mortgage rate for a time, but if interest rates rise during this period, you could end up paying a higher mortgage interest rate when you come to remortgage, or if you move onto your lenders standard variable rate.
Our mortgage calculator shows you how much you would pay each month and over your mortgage term, assuming the rate remains the same over the mortgage term. If your mortgage rate changes, you can use the calculator again to show what your payments would be on your new rate, as well as the total amount youll pay over the mortgage term.
You can see the impact paying a higher or lower interest rate would have on your mortgage payments by using our interest rate calculator.
Choosing The Mortgage Term Right For You
A mortgage term is the length of time you have to pay off your mortgagestated another way, its the time span over which a mortgage is amortized. The most common mortgage terms are 15 and 30 years, though other terms also exist and may even range up to 40 years. The length of your mortgage terms dictates how much youll pay each monththe longer your term, the lower your monthly payment.
That said, interest rates are usually lower for 15-year mortgages than for 30-year terms, and youll pay more in interest over the life of a 30-year loan. To determine which mortgage term is right for you, consider how much you can afford to pay each month and how quickly you prefer to have your mortgage paid off.
If you can afford to pay more each month but still dont know which term to choose, its also worth considering whether youd be able to break evenor, perhaps, saveon the interest by choosing a lower monthly payment and investing the difference.
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How To Calculate Your Mortgage Payment
Mortgage calculators take into account a variety of different factors when determining your monthly mortgage costs. They can include the price of your home, your down payment, your monthly interest rate and the term length of your mortgage. If your math skills are a little rusty, a mortgage calculator does the hard work for you in order to determine your monthly payment and associated costs.
The basic formula for calculating your mortgage costs: P = A/
- P stands for your monthly payment
- A stands for your loan amount
- T stands for the term of your loan in months
- R stands for the monthly interest rate for your loan
For example, lets say that John wants to purchase a house that costs $125,000 and has saved up a $25,000 down payment. His loan amount is $100,000, the term length is 15 years and the monthly interest rate is 4.20%. In this scenario, Johns monthly mortgage payment will be $749.75.
Johns mortgage cost formula will look like: 749.75 = 100,000[4.2^180/[^180-1)
If John wants to purchase the same house with a 30-year term length, the formula works in much the same way. In this scenario, his loan amount is $100,000, term length is 30 years and monthly interest rate is 4.20%. With a 30-year mortgage, Johns monthly mortgage payment will be $489.02.
Johns mortgage cost formula will look like: 489.02 = 100,000[4.2^360/[^180-1)
Canadian Mortgage Regulations Taxes And Fees
Canada-wide mortgage regulations are set by the Ministry of Finance to help protect home buyers and lenders alike. These regulations include guidelines on minimum down payments, maximum amortization periods, as well as mortgage default insurance.
Here are the key regulations you need to be aware of, and that are included in the Ontario mortgage calculator above:
- The minimum down payment in Canada is between 5% and 10%, depending on the purchase price of the home.
- The maximum amortization is 25 years for down payments under 20% and 35 years for higher down payments.
- Mortgage default insurance – also called CMHC insurance – must be purchased for down payments between 5% and 20%. Visit our CMHC insurance page to learn more.
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Whats A Homeowners Insurance Premium
A homeowners insurance premium is the cost you pay to carry homeowners insurance a policy that protects your home, personal belongings and finances. The homeowners insurance premium is the yearly amount you pay for the insurance. Many home buyers pay for this as part of their monthly mortgage payment.
Lenders typically require you to purchase homeowners insurance when you have a mortgage. The coverage youre required to purchase may vary by location. For example, if you live in a flood zone or a state thats regularly impacted by hurricanes, you may be required to buy additional coverage that protects your home in the event of a flood. If you live near a forest area, additional hazard insurance may be required to protect against wildfires.
How Much House Can I Afford
One of the key metrics lenders look at to determine how much house you can afford is your debt-to-income ratio the percentage of your gross monthly income that goes toward paying your monthly debt payments. A low DTI demonstrates that you have a good balance between debt and income, while a high DTI signals that your debt may be too high for your income.
In general, 43% is the highest DTI you can have and still qualify for a mortgage. Most lenders, however, prefer DTIs that are no higher than 36%, with housing expenses representing no more than 28% of that debt .
Another factor that determines how much house you can afford is the amount of money you have available to make a down payment and cover closing costs. Though a larger down payment might mean a bigger mortgage , make sure you’ll have money left over to furnish the home and live in it.
Of course, just because a lender approves you for a loan doesn’t mean you have to borrow the entire amount. A smaller loan payment provides some wiggle room each month, which might come in handy in an emergency or if something unexpected comes up . A lower payment also makes it easier to save for other goals and work on your retirement nest egg.
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Who Can Help You In The Mortgage Market
There are many lenders in Canada serving the mortgage market: banks, other large financial institutions & mortgage brokers. Most mortgage brokers in your town or city have access to a broad range of local & nationwide lenders. A good mortgage broker is normally able to put you into a program at a competitive rate. Banks like the Bank of Nova Scotia are national and can also provide immediate financing for your loans. In practice, however, most buyers end up pre-qualifying with a bank or a realty institution through their real estate agent or mortgage broker. In that process, your needs and requirements are taken into consideration and matched with a lender that can provide the best service for you. In other words, you may end up with a completely different bank holding your paper than when you started. As long as the loan is backed and it meets your terms, you should feel confident in signing it.
How Do I Use The Mortgage Calculator
Start by providing the home price, down payment amount, loan term, interest rate and location. If you want the payment estimate to include taxes and insurance, you can input that information yourself or well estimate the costs based on the state the home is located in. Then, click Calculate to see what your monthly payment will look like based on the numbers you provided.
Adding different information to the mortgage calculator will show you how your monthly payment changes. Feel free to try out different down payment amounts, loan terms, interest rates and so on to see your options.
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The Mortgage Qualifying Calculator Says I Cant Afford My Dream Home What Can I Do
It can be disappointing to learn that the home you have set your heart on is out of financial reach, but dont give up hope! It may be that you can reach your goal by adjusting some of your other constraints. Perhaps you can save for a little longer in order to amass a larger down payment, or wait until your credit card and loans are paid off.
These small but significant changes could make all the difference and enable you to get the mortgage you require. If the down payment is causing you an issue, you might consider an FHA loan, which offers competitive rates while requiring only 3.5 percent down, even for borrowers with imperfect credit.
How Forbes Advisor Estimates Your Monthly Mortgage Payment
Forbes Advisors mortgage calculator makes it easy to estimate your monthly mortgage payment using your home price, down payment and other loan details. Based on that information, it also calculates how much of each monthly payment will go toward interest and how much will cover the loan principal. You can also view how much youll pay in principal and interest each year of your mortgage term.
To make these calculations, our tool uses this data:
- Home price. This is the amount you plan to spend on a home.
- Down payment amount. The amount of money you will pay to the sellers at closing. This amount is subtracted from the home price to determine the amount youll be financing with the mortgage.
- Interest rate. If youve already started shopping for a mortgage, enter the interest rate offered by the lender. If not, check out the current average mortgage rate to estimate your potential payments.
- Loan term. The loan term is the length of the mortgage in years. The most popular terms are for 15 and 30 years, but other terms are available.
- Additional monthly costs. In addition to principal and interest, the calculator considers costs associated with property taxes, private mortgage insurance , homeowners insurance and homeowners association fees.
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Other Ontario Closing Costs
There are a number of other Ontario closing costs to consider when purchasing a home.
Legal fees: There are many legal aspects to consider when purchasing a home. With that in mind, its important to hire an experienced real estate lawyer to review all of your paperwork and help you finalize your transaction.
Home Inspections: Its wise to use an home inspector before purchasing a home, to make sure the home youre about to buy is in good condition.
Land Transfer Tax Rebate In Ontario
The Ontario government gives a maximum $4,000 rebate to first-time house buyers to offset the cost of the land transfer tax. Based on Ontario land transfer tax rates, this rebate refunds the full value of Ontarios land transfer tax for homes up to $368,000 in value.
Visit our Ontario land transfer tax rebate page for more information on conditions and home buyer eligibility.
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My Result Shows I Can Afford My New Home What Should I Do Next
First of all, congratulations! You are now one step closer to owning the home you desire. The next step is to reach out to our team of top-notch mortgage lenders and get started on securing yourself the perfect deal.
Click Get FREE Quote, answer a few simple questions about yourself and the loan you are seeking to obtain personalized rate quotes from lenders doing business in your area. This service is totally FREE of charge and makes it easy to comparison shop for your best deal on a home loan. Take your next step today – it couldnt be simpler!
How Much Will My Mortgage Cost
The cost of your mortgage will depend on several different factors, including how much you are borrowing, your mortgage term, and the rate of interest youre paying. For example, the longer the mortgage term you choose, the cheaper your monthly payments will be, but the more youll end up paying back overall. If you choose a shorter term, your monthly payments will be higher, but youll reduce the total amount of interest you pay back.
Mortgages often come with arrangement fees, which can also have an impact on how much your monthly mortgage payments cost if youve chosen to add these to the amount you are borrowing.
If youre not sure which mortgage deal is likely to be most cost-effective for you based on your individual circumstances, seek professional advice from one of our advisers who can run you through all the available options.
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Ontario Sales Tax On Cmhc Insurance
When applicable, the cost of CMHC insurance is added to your mortgage balance and paid off over the amortization of your mortgage. However, Ontario provincial sales tax on CMHC insurance must be paid out in cash at the time your purchase closes.
Our tools automatically calculate these taxes – you’ll see them under the “Cash Needed” drop down menu.
What Does The Mortgage Qualifying Calculator Do
This Mortgage Qualifying Calculator takes all the key information for a you’re considering and lets you determine any of three things: 1) How much income you need to qualify for the mortgage, or 2) How much you can borrow, or 3) what your total monthly payment will be for the loan.
To do this, the calculator takes into account your mortgage rate, down payment, length of the loan, closing costs, property taxes, homeowners’ insurance, points you want to pay and more. Or, if you don’t want to go into that much detail, you can omit some of those to get a ballpark figure for the loan you’re considering.
You can also enter information about your current debts, like your car payments, credit cards and other loans to figure out how those affect what you can afford. This Mortgage Qualifying Calculator also gives you a breakdown of what your monthly mortgage payments will be, shows how much you’ll pay in mortgage interest each month and over the life of the loan, and helps you figure how you might allocate your upfront cash on hand toward closing costs. On top of that, it also lets you easily adjust any of the figures by using a sliding scale, making it simple to see how changing one or more affects the result, so you can identify where how reducing one thing or increasing another affects the final result.This Mortgage Qualifying Caculator also summarizes all your information in a detailed report, including an amortization table, for easy reference.
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