Take help of mortgage calculator to know your loan affordability
If you want to buy a home by taking a loan, you should calculate how much will be the mortgage payments, so that you can have an idea on how much repayment amount you can afford, so that you won’t have any problem in the future.
Components of a mortgage payment
To calculate the mortgage payments you need to have a clear understanding of the transaction process. Several components are taken into consideration while calculating the mortgage payments.
Mortgage payments consist of four main parts. Together they are known by the acronym PITI.
The parts are as follows:
- ‘P’ is for principal or the total amount which you are borrowing.
- ‘I’ stands for the amount of interest which you are paying based on the principal amount. The interest-rate will depend on your credit score and some other factors.
- ‘T’ is the amount of tax you have to pay on your home. These taxes are called property tax and will be included in the monthly payments on mortgage.
- ‘I’ is the home insurance policy. You have to buy this insurance before the final deal on loan is made.
Apart from the components mentioned above, you also have to make another payment in
mortgage and that amount will be put into the escrow amount, which will be maintained by
the creditors. This escrow amount is generally maintained to make payments related to hazard
insurance, property tax, etc.
How to calculate mortgage payment
You can calculate mortgage payments with the help of a mortgage calculator. It is a tool which
determines the total amount of your monthly payment on loan. The calculation is done on the
basis of the four components mentioned above. It uses a simple formula for calculating:
X = P[r (1 + r) t] / [(1 + r) t - 1]
In the formula, (X) is the total monthly payment, (P) is the total amount of loan you have taken,
(t) is the total loan term in months and (r) is the interest-rate.
Types of mortgage calculator
Based on the type of loan taken, a mortgage calculator can be of different types having different
formulae for calculation. You can get many free calculators from different websites to find out the
mortgage payments. The different types of calculator are:
- Affordability calculator: With this calculator you can find out the amount of loan you can afford. It tells you what should be your monthly income so that you can afford the loan amount you want.
- Amount you can borrow calculator: This calculator helps you to find out the maximum amount you can borrow.
- Comparison of FRM and ARM calculator: With this tool you can compare the total amount you have to pay if you opt for a fixed rate mortgage or an adjustable-rate one.
- Total monthly payments calculator: With this calculator you will be able to find out the total monthly payments towards the mortgage, if you opt for a fixed-rate mortgage and specify your loan term.
With the help of a calculator if you can find out how much mortgage payments you have to make
each month, you will be able to know your affordability to repay the loan and thus, selecting the
loan type will become much easier for you.