Monday, September 25, 2023

# How To Calculate Your Mortgage

## Example: Costs When You Break Your Mortgage Contract To Change Lenders

How To Calculate Your Monthly Mortgage Payment Given The Principal, Interest Rate, & Loan Period

Suppose a different lender is offering you 3.75% interest. To break your mortgage contract with your current lender youll need to pay a prepayment penalty of \$6,000.

You may also choose a blend-and-extend option with your current lender. This would give you a 4.6% interest rate.

Table 2: Example of costs to change lenders

Costs
\$40,350 \$38,005

In this example, you pay less when you choose a blend-and-extend option with your current lender.

Note that youll usually need to pay fees when you set up a new mortgage, including when you choose a blend-and-extend option. This example doesnt take into account any fees. Lenders may be willing to pay some or all of the fees. If this is the case, your costs to renegotiate your mortgage will be less.

## Consider The Cost Of Property Taxes

A monthly mortgage payment will often include property taxes, which are collected by the lender and then put into a specific account, commonly called an escrow or impound account. At the end of the year, the taxes are paid to the government on the homeowners’ behalf.

How much you owe in property taxes will depend on local tax rates and the value of the home. Just like income taxes, the amount the lender estimates the homeowner will need to pay could be more or less than the actual amount owed, which could result in a bill or a refund come tax season.

You can typically find your property tax rate on your local government’s website.

## How To Use The Loan Amortization Calculator

With HSH.com’s mortgage payment calculator, you enter the features of your mortgage: amount of the principal loan balance, the interest rate, the home loan term, and the month and year the loan begins.

Your initial display will show you the monthly mortgage payment, total interest paid, breakout of principal and interest, and your mortgage payoff date.

Most of your mortgage loan payment will go toward interest in the early years of the loan, with a growing amount going toward the loan principal as the years go by – until finally almost all of your payment goes toward principal at the end. For instance, in the first year of a 30-year, \$250,000 mortgage with a fixed 5% interest rate, \$12,416.24 of your payments goes toward interest, and only \$3,688.41 goes towards your principal. To see this, click on “Payment chart” and mouse over any year.

Calculate

The effect of prepayments

Now use the mortgage payment calculator to see how prepaying some of the principal saves money over time. The calculator allows you to enter a monthly, annual, bi-weekly or one-time amount for additional principal prepayment.To do so, click “+ Prepayment options.”

You may also target a certain loan term or monthly payment by using our mortgage prepayment calculator. Of course you’ll want to consult with your financial advisor about whether it’s best to prepay your mortgage or put that money toward something else, such as retirement.

Loan amount

Interest rate

Loan term

Starting month/year

Payment chart

Recommended Reading: How Do You Calculate Points On A Mortgage

## 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.

## How To Calculate Mortgage Interest

To calculate interest paid on a mortgage, you will first need to know your mortgage balance, the amount of your monthly mortgage payment, and your mortgage interest rate. For example, you might want to calculate mortgage interest for a mortgage of \$500,000 with monthly payments of \$2,500 at a 3%mortgage rate .

To find how much interest is paid on your initial monthly mortgage payment, you just need to apply the interest rate against your mortgage balance as a monthly rate. Applying the 3% mortgage rate to the mortgage balance, you will get an annual interest amount of \$15,000. You then divide this by 12 to get your monthly interest amount, which would be \$1,250. As your monthly payment is \$2,500, the remaining amount of \$1,250 will go towards your principal.

To calculate mortgage interest paid for the second month, you first need to recalculate your mortgage balance. Since you paid \$1,250 towards your principal in the first month, your new mortgage balance is \$498,750. The interest paid will be 3% of \$498,750 divided by 12 to get a monthly rate. You will get \$1,246.87, which is the interest paid in the second month. Your principal payment will be the remaining out of the \$2,500 payment, which would be \$1,253.13.

Also Check: How Long Does It Take To Prequalify For A Mortgage

## Break Your Mortgage Contract To Change Lenders

You may decide to renegotiate your mortgage contract and change lenders because another lender offers you a lower interest rate. In this case, you may need to pay a prepayment penalty to break your mortgage contract. Make sure the benefits of breaking your mortgage contract will save you money once you include all the fees.

## Equation For Mortgage Payments

M = P

• M = the total monthly mortgage payment
• P = the principal loan amount
• r = your monthly interest rate. Lenders provide you an annual rate so youll need to divide that figure by 12 to get the monthly rate. If your interest rate is 5%, your monthly rate would be 0.004167 .
• n = number of payments over the loans lifetime. Multiply the number of years in your loan term by 12 to get the number of total payments for your loan. For example, a 30-year fixed mortgage would have 360 payments .

This formula can help you crunch the numbers to see how much house you can afford. Using our mortgage calculator can take the work out of it for you and help you decide whether youre putting enough money down or if you can or should adjust your loan term. Its always a good idea to rate-shop with several lenders to ensure youre getting the best deal available.

Also Check: What Does Prequalification For A Mortgage Mean

## How Much Can You Afford To Borrow

Lenders generally prefer borrowers that offer a significant deposit. They typically request at least 5% deposit based on the value of the property. If a house is valued at £180,000, a lender would expect a £9,000 deposit. In this example, the lender would be willing to offer a loan amount of £171,000. Meanwhile, some lenders may offer first-time buyers a 100% mortgage with a £0 deposit. However, obtaining this sort of deal usually forces a borrower to pay a much higher interest rate on their loan. This is usually one percent higher than a mortgage that requires a deposit. Consider this expensive trade-off before choosing a zero-deposit deal.

If you know the interest rate youll be charged on a loan, you can easily use the above calculator to estimate how much home you can afford. For example, at 2.29% APR on a £180,000 home loan, it will require £788.61 of full repayment per month, or £343.50 per month with an interest-only payment. If your maximum monthly budget for a home payment is £1,000 per month, you would then divide this amount by the above payments to get the equivalent loan capital. The example is shown in the table below.

Default Calculation

 £551,596 £524,016 = £27,580 £240,272 £228,258 = £12,014

If you had £200 in other monthly home ownership related fees, then this might take a renter equivalent of £1,000 down to £800.

## Finding The Right Down Payment Amount

How to Calculate Your Mortgage Payment

A purchase calculator can help you determine the down payment you need. There are minimum down payments for various loan types, but even beyond that, a higher down payment can mean a lower monthly payment and the ability to avoid mortgage insurance.

On the flip side, a higher down payment represents a more significant hurdle, particularly for first-time home buyers who dont have an existing home to sell to help fund that down payment. The calculator can show you options so that you can balance the amount of the down payment with the monthly mortgage payment itself.

## Calculate The Monthly Interest Rate

The interest rate is essentially the fee a bank charges you to borrow money, expressed as a percentage. Typically, a buyer with a high , high down payment, and low debt-to-income ratio will secure a lower interest rate the risk of loaning that person money is lower than it would be for someone with a less stable financial situation.

Lenders provide an annual interest rate for mortgages. If you want to do the monthly mortgage payment calculation by hand, you’ll need the monthly interest rate just divide the annual interest rate by 12 . For example, if the annual interest rate is 4%, the monthly interest rate would be 0.33% .

## To Calculate Your Total Debt Service Ratio:

• Add up your housing costs . Also include any other debt obligations, such credit card and line of credit payments , car payments, student loans and child or spousal support.
• Divide the total by your gross income, which is your total earnings before taxes and deductions.
• To obtain your TDS in the form of a percentage, multiply the result by 100.
• Now, on top of your housing costs listed above, lets assume your non-housing related debts come in at \$800 per month . Your TDS ratio would fall within the limit, at 41%.

When it came to buying my own place, I was well within these numbers, but how much I could end up spending on a new mortgage still made me squeamish. Already in my 40s, shouldnt I be paying off my mortgage instead of adding to it?

Thats not reality, says Calla. As difficult as it might be, she says its important to not compare yourself to others. Make the decisions that best suit your lifestyle and goals.

The math behind your down paymentIn my case, I was selling my condo to finance the purchase of my new home, so I calculated how much I would have for a down payment based on an estimate of my current homes value.

First, I tallied the costs associated with moving, including real estate agent commissions, legal fees, moving-day expenses, a home inspection and land transfer taxes . To calculate closing costs, the rule of thumb is to budget for 4% of your homes purchase price. A \$500,000 home, for instance, would require \$20,000.

Scenario 1
\$200,000

Recommended Reading: Why Are Mortgage Closing Costs So High

## Know How Much You Own

Its crucial to understand how much of your home you actually own. Of course, you own the homebut until its paid off, your lender has a lien on the property, so its not yours free-and-clear. The value that you own, known as your “home equity,” is the homes market value minus any outstanding loan balance.

You might want to calculate your equity for several reasons.

• Your loan-to-value ratio is critical, because lenders look for a minimum ratio before approving loans. If you want to refinance or figure out how big your down payment needs to be on your next home, you need to know the LTV ratio.
• Your net worth is based on how much of your home you actually own. Having a one million-dollar home doesnt do you much good if you owe \$999,000 on the property.
• You can borrow against your home using second mortgages and home equity lines of credit . Lenders often prefer an LTV below 80% to approve a loan, but some lenders go higher.

## To Calculate Your Gross Debt Service Ratio:

Add up your housing costs (i.e. your mortgage payments, property taxes, heating and, if applicable, half of your condo fees.Divide them by your gross income, which is your total earnings before taxes and deductions.To obtain your GDS in the form of a percentage, multiply the result by 100.Lets say your household brings in a combined \$130,000 per year, and you expect to pay \$3,000 per month on the mortgage for your new single-family home, plus another \$500 on property taxes and \$150 on heating. In the eyes of lenders, you would have a GDS of 38%.

Also Check: How Do Mortgage Loan Officers Make Money

## Estimated Credit Score Rating

Your estimated credit score rating offers lenders a have a look at your as a borrower. If all different issues are held equal, the upper your rating, the higher your historical past and the higher your price.

One factor thats price noting is that when lenders have a look at your credit score rating, they qualify you with the median rating among the many three main credit score bureaus. For those who occur to know of a variation, attempt to choose someplace within the center. Nevertheless, this might not be as a lot of a priority since youre simply selecting a credit score rating vary at this level.

## Current Mortgage Balance And Payment

Together with your home value estimate, your current mortgage balance is used to determine how much equity you have for the purposes of loan qualification as well as figuring how much cash you can take out.

The payment can be useful because sometimes the reason for refinancing is to try to lower your payment, usually accomplished either through lowering your rate or lengthening your term. Including this info will let you better compare options.

Also Check: What Are Current 20 Year Mortgage Rates

## Why Break Your Mortgage Contract

The current conditions of your mortgage contract may no longer meet your needs. If you want to make changes before the end of your term, you can renegotiate your mortgage contract. This is also known as breaking your mortgage contract.

You may want to break your mortgage contract if:

• interest rates have gone down
• your financial situation has changed
• you want to buy a new home and are planning on moving
• your family situation has changed

## Get A More Accurate Estimate

How to Calculate Your Mortgage Payment

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.

• Pig

Interested in refinancing your existing mortgage? Use our refinance calculator to see if refinancing makes sense for you.

• Dollar Sign

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.

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Recommended Reading: Can I Throw Away Old Mortgage Papers

## How Big Is The Uk Mortgage Market

Historically across the United Kingdom, around 65 thousand to 70 thousand mortgages are approved each month. This is from a low of around 30 thousand after the 2008 to 2009 global financial crisis. Prior to the recession, the monthly rate was closer to 80 thousand to 130 thousand mortgages completed each month.

The UK Mortgage Market is Over £1.5 Trillion

In the fourth quarter of 2020, there were £76.5 billion new mortgage originations in the UK, according to the Financial Conduct Authority . At the end of the fourth quarter of 2020, there were £1,438.4 billion in unsecuritised home loans outstanding, with £102.956 billion in securitised home loans. Total residential mortgages to individuals summed of £1.541 trillion across 13,404,487 loans in the fourth quarter of 2020.

Overall mortgage debt tends to grow around 3% to 6% per annum, though there can be significant fluctuations in that rate of growth due to factors like BREXIT, the global economic crisis which happened in 2008, COVID-19 lockdowns, etc. Segments of the market can change faster than the overall market due to those same sorts of factors along with various legal changes tied to foreign property ownership, the localised balance between immigration and construction, etc.

## Example Of A Prepayment Penalty Calculation

Suppose you want to break your mortgage contract to get a new contract with a lower interest rate. You want to estimate how much the prepayment penalty will be.

Assume the following:

• current interest rate: 6%
• number of months left in term: 36 months left in a 5-year term
• current posted interest rate for a mortgage with a 36-month term offered by your lender: 4%

The approximate fees are:

• amount equal to 3 months interest on what you still owe: \$3,000
• IRD: \$12,000

You have to pay a prepayment penalty of \$12,000, which is the higher of the 2 amounts. You may also have to pay an administration fee.

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## What Is An Amortization Schedule

An amortization schedule shows your monthly payments over time and also indicates the portion of each payment paying down your principal vs. interest. The maximum amortization in Canada is 25 years on down payments less than 20%. The maximum amortization period for all mortgages is 35 years.

Though your amortization may be 25 years, your term will be much shorter. With the most common term in Canada being 5 years, your amortization will be up for renewal before your mortgage is paid off, which is why our amortization schedule shows you the balance of your mortgage at the end of your term.