The Budget Smartly 
THE BUDGET SMARTLY MORTGAGE CALCULATOR
Use The Budget Smartly mortgage calculator to help you estimate your monthly payments and what you can afford. Buying a house is the largest investment of your lifetime, and preparation is key. With The Budget Smartly home loan calculator, you can play around with the numbers including the loan amount, down payment, and interest rate to see how different factors affect your payment.
Knowing what you can afford is the first step in buying a home. It puts you well ahead of the competition. You can talk to lenders, understand the numbers they throw at you, and know what you’re comfortable paying each month.
Buying a home and taking out a mortgage isn’t just about the interest rate – it’s about the big picture. Use The Budget Smartly mortgage calculator to see that big picture so you know what you’re getting into since a mortgage is a long-term commitment, sometimes as long as 30 years.
Frequently Asked Questions
What is a Mortgage?
A mortgage is a loan you take out to buy a home. Lenders base your eligibility on your credit score, current debts, money saved, and the home’s value. The difference between a mortgage and a standard loan, besides the loan amount, is the collateral. Lenders use your house as collateral. If you default on your payments (usually more than 90 days), they can foreclose on your property. The bank then takes the home and sells it to make back the money lost from you not making your payments.
What is Mortgage Insurance?
Mortgage insurance is insurance for the lender. Borrowers pay it, but it is for the lender if you default. Conventional loans require mortgage insurance if you put down less than 20% on the home. You can cancel it once you pay your balance down to 80% of the home’s value.
Government loans, including FHA and USDA loans, charge mortgage insurance for the life of the loan, but at a rate lower than conventional loans. Mortgage insurance helps borrowers secure a loan when they don’t have great credit or don’t have much money to put down on the home.
How to Calculate a Mortgage Payment?
Your mortgage payment includes principal, interest, mortgage insurance, real estate taxes, and homeowner’s insurance. The principal is the amount you borrow. The interest is the fee the bank charges. You can figure out the monthly amount by taking the annual interest rate (rate quoted) and dividing it by 12. Multiply that number (your monthly interest rate) by the outstanding principal balance to get your interest charges.
The mortgage payment is the principal (the portion you’ll pay) plus the monthly interest, 1/12th of the real estate taxes, 1/12th of the home insurance, and the required mortgage insurance (if applicable).
How Many Mortgages Can I Afford?
Lenders determine how much mortgage you can afford based on your income, credit score, and current debts. Each situation is different but in general, lenders allow up to a 43 – 50% debt-to-income ratio. Your mortgage (principal, interest, real estate taxes, home insurance, and mortgage insurance) plus any existing debts, such as credit cards, car loans, or personal loans shouldn’t exceed 43% – 50% of your gross monthly income (income before taxes).
How to Get a Mortgage?
A mortgage can be obtained through a financial institution such as a bank, credit union, or specialized mortgage lender. You can get pre-qualified for a mortgage or apply at a time when you are ready to buy. The lender will check your credit score history and employment history to make their decision.
What Are The Points of a Mortgage?
Points are fees paid to a lender upfront in exchange for a lower interest rate on your mortgage loan. The lender agrees to reduce the closing costs of purchasing the property in exchange for a higher interest rate. If you purchase “discount points” your closing costs will be higher, but the interest rate lower for the life of the loan.
How to Calculate a Mortgage Payment?
There is a complex formula that allows you to calculate your mortgage loan. The formula is as follows:M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
M= Mortgage
P= Principal amount
I= Monthly interest rate (yearly rate divided by 12 months)
N= Number of monthly payments for the duration of the loan (15 years x 12 months = 180 payments)
We recommend using a mortgage calculator to easily calculate your mortgage payment.
What is a Jumbo Mortgage?
A jumbo mortgage, commonly referred to as a jumbo loan, is used to finance amounts higher than the conventional loan limit. The amount financed is higher than the loan limit set by the Federal Housing Finance Agency.
How to Pay Off a Mortgage Faster?
There are quite a few ways in which one can pay off their mortgage earlier than their set loan date. One of the most obvious ways is paying a higher amount on your mortgage than has been calculated and therefore reducing the amount of interest you pay in the long run. Another way to pay off a mortgage faster is to make your loan payment bi-weekly, resulting in an additional payment in a year.
What is an FHA Loan?
An FHA loan is a mortgage loan that is insured by the Federal Housing Association. An FHA loan allows individuals to close on a property with a down payment as low as 3.5%. FHA loans are considered a type of federal assistance for first-time and returning home buyers.
What is a Home Equity Loan?
A home equity loan uses the value of your current property as collateral. A home equity loan is issued as a lump sum and is determined based on the current value of your home. The value is decided by an appraiser from the lending institution your loan will be provided.
What is a Conventional Mortgage?
A conventional loan is not backed by a government agency such as the FHA and is in turn solely provided by a private lender. This loan is not insured by the government and therefore may have stricter qualification requirements.
Definitions of Terms
Mortgage
A mortgage is a loan you borrow to buy a home. It includes the principal, interest, and required mortgage insurance. Some lenders also require you to include your real estate taxes and home insurance in the payment. You use the mortgage in addition to your down payment to buy a home.
Mortgage Calculator
The Budget Smartly mortgage calculator can help you determine how much house you can afford and estimate your payments. It’s a great tool to use before you shop for a house or before you refinance. See what your monthly payments would be and how different factors affect it.
See also Modern Money Management: 8 Practical Steps to Take Control of Your Finances
Purchase Price
The purchase price is the price you agree to pay for a house with the seller. Whether the seller accepts your first offer or you go back and forth, the purchase price is the final number you agree on and that is written on your sales contract. Lenders use this number as a baseline when determining your mortgage amount.
Down Payment
The down payment is the money you invest in the home. You’ll need at least 3.5%, but sometimes more. You base the down payment on the purchase price. For example, if your purchase price is $100,000, a 3.5% down payment would be $3,500 and a 20% down payment would be $20,000.
Interest Rate
The interest rate is the fee the lender charges monthly until you pay the loan in full. They quote you an annual interest rate, but you can figure out the monthly rate by dividing the annual rate by 12. As you pay your principal balance down, you’ll pay less interest. You can check today’s mortgage rates on our website.
Mortgage Term
The mortgage term is the time you have to pay the loan back. Most borrowers take out a 30-year or 360-month term, but there are other options including a 10, 15, and 20-year term. The less time you borrow the money, the lower the interest rate a lender will charge.
Start Date
The start date is the date of your first payment. It’s not the date you take out the mortgage. You pay interest in arrears, so your first payment will be the month following the month after you close on the loan. For example, a loan closed on January 15 would have its first payment on March 1st.
Property Tax
All US counties charge property tax. You can find out the amount by visiting the county assessor’s website. The property taxes are a percentage of your home’s assessed value. Many mortgage lenders require you to pay your taxes monthly with your mortgage payment to make sure they are paid.
Property Insurance
Lenders require property insurance. It insures you against financial loss but also protects the lender. If you couldn’t afford to renovate the home or build it again after a fire, the lender would have a total loss. Property insurance protects both parties.
PMI
PMI stands for Private Mortgage Insurance and only applies to conventional loans. If you put down less than 20% of the purchase price, the lender will require PMI until you owe less than 80% of the home’s value. If you default on your loan (for over 90 days), the lender can make a claim with the insurance company, foreclose on your home, and get back a portion of the amount they lost.
LTV (Loan-To-Value)
Loan-to-value is an assessment of lending risk that lenders use to determine whether or not they will approve the mortgage loan for a potential home buyer. Loan assessments with higher LTV ratios are considered higher risk and may include higher interest rates for the homebuyer. Lower LTV means that a higher down payment was made and therefore the risk of the buyer defaulting on the loan is lower, resulting in lower interest rates. LTV is calculated by taking the mortgage amount and dividing it by the appraised property value.
Principal
The principal is the actual balance of the loan excluding any interest payments, taxes, or insurance. It is the original amount that was borrowed from the lender and had interest applied to it as well as other costs of borrowing such as taxes and PMI. The principal will be the amount of money you must pay until the loan is completely paid off, however, due to the amortization schedule, the initial payments are directed towards the interest before they are to the principal.
Interest
Interest is the number one cost of borrowing and is calculated at a percentage of the principal amount of the loan. Because interest compounds, the majority of the initial payments are applied toward the interest rather than the principal balance. This causes homebuyers to apply extra payments to their loan, to decrease the compounding of the interest and reduce the sum of the loan they will pay.
PITI
Principal, interest, property taxes, and home insurance (PITI) are the sum of four components of a monthly mortgage payment. Together they make up what homebuyers would traditionally refer to as their mortgage. PITI is used by both borrowers and lenders to determine the affordability of a property for the homebuyer. If the PITI amount is considered too high when compared to the monthly household income, the borrower is considered a high credit risk and may not be approved for the mortgage loan.