What is Included in Mortgage Calculations?
When applying for a home loan, borrowers should consider all of the elements that will make up their mortgage payment. Mortgage calculations are comprised of more than just the loan amount. They also include property tax payments and insurance fees broken down into monthly payments.
So, What is Included in Mortgage Calculations...
Loan amount
This is the amount of the purchase price of your home minus your down payment. The larger your down payment, the smaller your monthly mortgage payment. The interest charged in your mortgage calculations will be based upon the loan amount.
Interest
Your interest rate is the amount the borrower pays to the lender for use of the money until the loan is paid off. Mortgage rates have a huge effect on mortgage calculations; the larger the interest rate, the more you’ll pay every month. Most commonly, borrowers choose to have a fixed interest rate which remains the same throughout the life of the loan. Borrowers can also choose to have an adjustable rate which will fluctuate throughout the term of the loan.
Loan length
The loan length is the amount of time the borrower has to pay off the loan. Most borrowers opt for a 30-year loan or a 15-year loan. A 30-year loan gives borrowers a lower monthly payment but a higher interest rate than a 15-year loan. In most circumstances the borrower is allowed to pay off the loan earlier than the loan length if they so choose. Throughout the life of the loan, most borrowers have the option to refinance their loans which can lower their monthly mortgage calculations.
Property taxes
Property taxes vary by county and are valued as a percentage of the assessed value of the home, regardless of your loan amount. Even after the home is paid off, homeowners still have to pay property tax. Property taxes are generally used to support local infrastructure, education, police/fire protection, local governments and other localized services. Property taxes are subject to change and can alter your mortgage calculations. At the borrower’s discretion, property taxes can be paid semi annually or added to the loan payment and spread out on a month-to-month basis.
Insurance
Mortgage calculations also include any insurance that is legally required when the house is purchased. In most areas it is required to have basic homeowners insurance, but in other areas flood or earthquake insurance may be required as well. Homeowners insurance not only protects the borrower in case of an emergency but also protects the lender should the home be severely damaged.
Annual PMI
PMI is private mortgage insurance and is included in the mortgage calculations for borrowers with less than a 20% down payment on the property. PMI protects a lender against loss if a borrower defaults on the loan and enables borrowers with less cash to have greater access to home ownership. Borrowers who pay PMI will have higher mortgage calculations.
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