Mortgage payment CALCULATIONS
a u-turn to dream house or a wrong turn to bankruptcy
Today whole world seems to be rushing towards a blind alley of economic amelioration and striving for the fulfillment of their basic needs of food, clothing and shelter. Although America is crowned as city of dreams, but most of its inhabitants struggled a lot for their first dream of having roof on their heads. According to a survey conducted by “Habitat for Humanity”, every sixth American colonizes is found to be in the need of a standardized house. The housing market of United States is termed as economic bubble with an uncertain hike in intrinsic price and that too on short notice.
The researches also proved that more than four million house owners are either on the verge of their mortgage payment breach or meeting solicitors and facing judiciaries with summons of property forfeiture. But still this termite is eating the house market and causing big wallet holes and became a reason for bankruptcy of many people.
Regardless of these stories, when it comes to buying a house, all of us prefer the finance option and borrow money from lending organizations such as banks. Every lending institution have its own terms and conditions for issuing loans and one has to met the criteria and has to fulfill the mandatory requirements of mortgage document. The problems associated with the nightmare of mortgage can be halted, if a borrower avoids overlooking some essential steps before signing a mortgage agreement.
Mortgage Payment Calculation:
The calculation of Mortgage Payment is based on various terms and one must understand these terms before signing up an agreements. These terms are:
- Home Value: Before signing any loan agreement, one must know the total price of the property, for which mortgage amortization terms and conditions will be fixed.
- Credit Profile: In which category of creditability an applicant falls in? Although this is not a decisive factor in most of the lending cases, yet some lending institution check a borrower’s creditability.
- Mortgage Amount: This is considered as vital factor for calculating the mortgage payment. In simpler terms, the more you borrow, the more you will be amortizing.
- Mortgage Term: next comes the term of mortgage, which mean for how long the loan will taken. In financial terms, shorter the term/ duration, lesser repayments installments and lesser interest paid on them. for example:
Example A:
House Value : 4, 00,000
Loan Amount : 2, 50,000
Interest Rate : 5%
Loan Term : 30 years
Starting Date : Dec 2011
Property Tax : 1.25%
PMI : 0.5%
|
30 years |
40 Years |
|
| Monthly Payment |
$1758.72 |
$1622.16 |
| Total Repayments |
$ 633,139.46 (360 Installments) |
$ 778,635.92 (480 Installments) |
| Total Interest Paid |
$233.139.46 |
$328.635.92 |
| Total Tax Paid |
$1,50,000 |
$2,00,000 |
| Total PMI Paid |
$0 |
$0 |
- Property Tax: Property tax is a tax which is levied by the local government of the area in which the property is situated. It can be anything from 0.2% to 4% depending on the location, land value, property rating, site value and building value.
- Rate Type: The banks and lending institution offers variation in rate types such as fixed rate or variable rate. So this becomes another major factor behind payment calculation.
- Payment Frequency: This term defines how often one chooses to make payments. Many institutions offer Monthly, Semi-Monthly, Weekly, Bi-Weekly, Accelerated Bi-Weekly or Accelerated Weekly. The more frequent you payback the more you will be relaxed.
- Interest Rate: Each and every lending institution has its own interest rate, but they cannot exceed the rates fixed by the Federal Reserve Bank.
- Mortgage Start Date: Last but not least is the date when the mortgage payment calculation will start. This will be the date from when all interest calculation will come into effect.
Monthly payment Calculator
This monthly fixed payment method is commonly adopted by most of the mortgage lenders. This method assures a fix repayment every month and also guarantees the lender that full repayment will be done at the end.
To start with the formula thing, one must know the terms used in these:
o ‘P’ stands for Principal Amount or the Initial Amount of the Loan
o ‘R’ stands for the Interest Rate that will be charged on the borrowed money
o ‘N’ stands for number of monthly repayments or in simpler words it is known as loan’s term.
Formula is: c =rP/(1-1+r)-N
Elucidation:
P or Loan Amount is : 2, 00,000
R or Interest Rate is : 6.5%
N or Term is : 30 years
Calculation will be:
P = 2, 00,000
R = 6.5/100/12
N = 30 years x 12 months = 360
C =rP/(1-1+r)-N
C =(6.5/100/12)X2,00,000)/(1-((1+(6.5/100/12))-^360
C= 1260.14
Total Interest Paid:
In addition to above cited formula there is another query that hits borrowers mind is that how much interest they will be paying in total for the amount loaned. So here is the formula to solve that query:
So in simpler terms, it is the difference between the total value of the property and total amount to be paid as repayment. The formula for the calculation will be:
I =cN- P
Here ‘I’ stand for the interest Rate, N stand for the Number of repayments and P stand for Principal Amount. For exemplification, consider above example where (Example A):
House Value : $4, 00,000.00
Total Repayments : $6, 33,139.46 (360 Installments)
——————————————
Interest Paid was : $2, 33,139.46
—————————————-
Besides many of the people come up with queries like number of repayments and remaining principal balance calculation. There are formulas for these calculations as well but these calculations are complex in nature and prone to manual mistake, if done self. So it is recommended to either consult a mortgage planner or try online mortgage payment calculators for self interest.
