The decision between buying or renting a property is a tough one. There are lots of factors to consider but for a lot of people it ultimately comes down to the financial sense of it all. You can look at buy vs rent spreads all you want but if you only plan on living in the same place for two years, renting might still be the way to go. On the other hand, if you plan on having roommates you could actually end up getting your entire mortgage paid for by someone else.
One of the best tools to help you calculate your potential costs is a mortgage calculator. Essentially, a mortgage calculator will allow you to enter in variables like loan amount, interest rate and type of mortgage and it will output your monthly costs. You can even see a breakdown of principal and interest to help you calculate just how much equity you’ll be gaining and also your tax savings.
A mortgage calculator is very handy when you’re in the planning phase of buying a home. Since you can look at various different purchase prices and calculate exactly what your monthly payments will be, you’ll know exactly what type of property you can afford. And the best part about mortgage calculators is that most banks will offer them for free on their websites.
Mortgage calculators only work though if the dat you’re entering is correct. Here’s a breakdown of the variables required for calculating your monthly mortgage payment.
Mortgage Amount
The mortgage amount is calculated by subtracting your down payment from the purchase price of the home. Most loans will require 10-20% down payment.
Mortgage Term
The mortgage term is the length of time you’d like to repay the loan. Most loans are set on a 30 year repayment schedule, but there are also 15, 20 and 25 year schedules. The lower the length of your term, the higher your monthly payments will be.
Interest Rate
This is the number that we know and love. You can get an estimated interest rate for free from your bank and use this number in order to calculate what your payments will be.
In the end, preparation is key to making a smart real estate decision. You wouldn’t want to go and buy any old property without first carefully reviewing your finances and finding out what your payments will be like. Once you’ve worked out the details of your monthly mortgage payment, you’ll also need to take into consideration property taxes and any HOA fees.
A mortgage calculator is a great tool to help you along with the buying process but you still need to do your research.
Discussion Questions:
Readers, have you ever used a mortgage calculator? How did it help you in the home buying process? Were you able to buy more or less house than you thought after using the mortgage calculator?
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