When looking to buy a house, it’s important to be able to plan for your payments in the future. Now while many home listing apps like Zillow, Redfin or Realtor.com have built in mortgage calculators, they are extremely basic and don’t include vital information. This lack of information means you’re not getting the right numbers, which could lead to you missing out on your dream home.
A mortgage calculator should include the following:
Price of Real Estate
How much is the property? Many calculators merely include the asking price of a particular home, and don’t include the actual selling price.
Down Payment Percentage
Instead of using a flat dollar amount, utilizing a percentage allows you to know what kind of loans you’re qualified for. Conventional loans usually require 15 percent to 20 percent, while an FHA loan can be had for 3 percent to 5 percent down.
Amount of Loan
How much is the loan for? This is not just the price of the house but, how much you’ll actually have to pay after closing costs, padding for repairs, realtor fees, etc.
Number of Payments
How many payments are involved with this loan? While we have a tendency to think of mortgages in years, we break our budgets down into months, and applying the same mentality to a housing budget is extremely beneficial. Plus, by breaking down the number of payments, you’ll be able to see how much money you’ll save in interest if you make one extra payment a year.
Annual Interest Rate
Keep in mind that, the interest rate is not the same as APR. While both are percentages that reflect money you pay above and beyond the principle of your property, an interest rate is just the interest, no other fees or costs, while APR includes fees and additional items that are often included in your mortgage. –These additional costs are often items like PMI, closing costs, loan fees and points.
Often referred to as discount points, points are money you pay your lender up-front at closing in order to reduce your interest rate. By spending a few thousand dollars up front, you can save tens of thousands over the lifetime of your loan. One point costs 1 percent of your mortgage amount (or $1,000 for every $100,000), so one point for a $150,000 home would cost $1,500 up-front.
Annual Property Tax
Property tax is the amount paid to the local government, which varies by property value and local laws. You can look up past local property tax information on most city websites, but you might have to go to the clerk’s office in person if they don’t have the information on line. Keep in mind this amount can change based on the assessment of the property and surrounding area. Lenders often roll your property tax into the overall monthly payment, keeping the amount for taxes aside in an escrow account so they can pay the bill promptly and automatically when it is due.
Home owners insurance is always a good idea, but some mortgages require a certain level of coverage, and include the cost in your monthly payment, by rolling it into escrow.
Private Mortgage Insurance (PMI)
When your down payment or equity in a home is less than 20 percent, you’ll also have to pay PMI. Since the loan to value ratio is so high, PMI is an insurance that protects the bank in the case they’ll have to foreclose on the property. Once your equity in the home is higher than 20 percent, you’ll no longer have to pay PMI.
The “Payment Method” determines when the first payment is due. With the default selection, “End-of-Period,” the first payment will be due one month after the loan is made. If “Start-of-Period” is selected, then the first payment will be due on the loan date.
What Information Should You Get?
You should be able to see at a glance what your monthly payment amount will be, what you’ll need for a down payment, the total amount of interest you’ll pay over the life of the loan, and the total combined amount you’ll pay for the principle and interest.
This information is important because it allows you, the buyer, to be more educated and consider all your options. -Buying a higher-priced home with an FHA loan and lower down payment means you’ll pay PMI, so how does that factor into your over all budget? -Will you be upside-down in your mortgage when you’re looking to move? -A 15-year loan means higher principle payments but can save hundreds of thousands of dollars in interest. -All of these are questions that a good mortgage calculator should help you answer.
Our calculator provides all the information you need, along with a helpful payment chart to see how your balance shifts over time.
If you have any questions, please contact the Olear Team. We’d love to help you.