Knowing how to calculate mortgage payments is another piece of the puzzle that will help you get the keys to that dream home. The more information you have, the better choices you’re going to make. That said, here’s a quick high level view of the basics.
Today’s mortgages are the by-product of the Great Recession. They were brought to life by the American government in 1934 to lessen the down payment needed and allow people to afford to borrow more money. Before this program was brought in, people who wanted to buy that first house needed as much as 50% down.
Today, the amount of the mortgage payments you can afford is based on several factors like the terms of the loan and its size.
The pieces of the puzzle
Here’s a breakdown of some of the terms you’ve hard bantered around and what they actually mean.
- Interest: We thought it might be best to start off with that one word everyone seems to dread. The money that you’ve borrowed needs to be repaid and this interest is the lender’s reward for the risk they take when they give you the cash in the first place. There’s a direct relationship here because the higher the rate the more the mortgage payment.
- Principal. The actual part of the loan that you are repaying starts out small and increases over time. You’ll see this go down when your mortgage gets more mature.
Amortization.
This is basically the roadmap for the mortgage journey. It will show you in detail how much of each payment is dedicated to each aspect of your mortgage. Remember there are usually taxes and insurance coverage that need to be added in as well. Why not get in touch with us today? We can clarify all these ideas further and help you to get the best mortgage possible.
