## Calculating the Size of Mortgage Payment

Calculating the size of your mortgage payment once you have decided how much you want to borrow is a matter of simple calculation. However, the difficult part is deciding how much you can afford to borrow in the 1st place. In order to calculate how much you can afford to borrow, you 1st need to know the overall cost of owning and maintaining the home. These costs include insurance, taxes and maintenance costs. Maintenance cost is something that a mortgage lender usually does not take into consideration when calculating his lending limit. However, this is a necessary cost and you should not ignore it.

If you have used the table to calculate your expenses of owning a home, the part of that which constitutes your mortgage payment, your estimates will differ by adjusting different costs to different factors. For example, if you figure that you can afford \$2000 per month as housing expense, you may come to the conclusion that only \$1500 per month qualifies as mortgage payment.

Other expenses include taxes, insurance, property maintenance and other expense associated with buying the home. This expense could also be things like additional commuting costs etc.

The amount that you decide to spend on a home and save for will make a difference in the amount that you can borrow as mortgage. If out of \$2000, you only decide to spend \$300 on other expenses, you can borrow \$1700 per month worth of mortgage loan. If these expenses are higher then will obviously have to adjust and borrow less.

You can use the following table to calculate the amount you will need to pay your monthly mortgage payment depending upon the interest rate and the term of the mortgage. Simply divide the amount of the mortgage loan by 1000 and multiply it by the relevant number from the table. For example, taking out \$100,000 mortgage at 4.5% for 30 year mortgage will mean that you have to pay a monthly payment of 100 (100,000/1000) multiplied by 5.07 which gives you a figure of \$507 per month.

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## Borrowing More Than What The Mortgage Lender Will Allow

Trying to borrow more than what a lender will qualify you for is almost never a good idea.

Many people are inclined to borrow more than what a mortgage lender will typically lend them for a home loan. They do this by falsifying information on their mortgage application or by overstating figures. Self-employed people have the greatest opportunity to do this.

This is a highly risky behavior and while some people may get away with it, it is an extremely good formula for landing yourself up in financial trouble.

Another thing to understand is that people who lie on their mortgage applications are mostly liable to get caught. This is because lenders often ask you to sign a form authorizing them to request a copy of her income tax return from the IRS. This allows the lender to verify your income.

So while the lenders limit is not necessarily what you can afford tomorrow on your home loan, trying to exceed that amount by line of forging information on your mortgage application is not acceptable and ill advised. Not only will you most likely get caught in your lies, you will be denied the mortgage loan, be unable to deal with the mortgage lender in the future, be committing perjury and fraud.

If that is not enough, you are risking default on your loan and financial and emotional turmoil as well. The banks and lending institutions do not want you to default on a loan and you shouldn’t want to take that risk either.

If you are sure that you have enough money 2 justify a larger home loan amount than the mortgage lenders lending, you can make them aware of the surplus financial resources rather than falsifying information on your mortgage application.

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## Cost of Homeownership – Mortgage Payments

Before you set out to buy a home, one of the most important questions that you must ask and answer is how much can you afford to spend. In order to answer that question accurately, you need to get a fair idea of your income and expenditure. You need to figure out your long-term financial goals and know what amount of your income you are going to need to achieve them. We have already discussed this in another section. In this section we will talk about the common costs of buying and owning a home.

### Mortgage Payments – Your largest home ownership cost

Your monthly mortgage payment is going to be the single largest cost of owning a home. Later on in other sections we will discuss choosing the best kind of mortgage that suits your financial circumstances the best.

Mortgage loans in the United States are typically 15 year or 30 year mortgages. Suppose you are purchasing a home for \$250,000, and as is advisable, you have made a 20% down payment, you will need to take a home loan for \$200,000. Here is what your monthly mortgage payment is going to be like under both the 15 year and 30 year mortgage term.

\$200,000, 15 year mortgage at 7% = \$1800 approximately a month.

\$200,000, 30 year mortgage 7.25% = \$1366 approximately.

As is obvious from the above calculation, the interest rate that is chargeable on a 30 year mortgage is slightly higher than the 15 year mortgage. This is almost always the case because the risk to the home loan lender is more for a longer mortgage term. Longer mortgage term means that there are more opportunities for something to go wrong with the finances of the borrowers and for him to default. The payment on the 15 year mortgage is higher because you are attempting to pay off the home loan 15 years earlier as compared to the 30 year mortgage.

You should not let the higher payment on the 15 year home loans to be a detergent in choosing it because by paying it off earlier you are not only going to get rid of your financial obligation that much quicker but are going to save a ton of money on interest as well. Taking the example above, this is the difference between the amount of interest that you will pay for a 15 year and a 30 year mortgage respectively.

Mortgage Term –  Total Payment – Interest

15 Year            324000           124000

30 Year            491760           291760

As you can see from the above example, the amount of interest that you end up paying for a 30 year mortgage as compared to the 15 year mortgage is more than double. This should not come as a surprise because the time that you are going to take to pay off the mortgage is also double.

You should know that in the earlier years of keeping your home loan, almost all of your monthly payment is going to go towards payment of your interest. The ratio of the monthly payment that is divided between interest and principal payment will bend more towards principal payment as the mortgage loan progresses and in the later years of the mortgage you will rapidly begin to pay down your loan balance.

With an increase in the interest rate, the time required to pay off of the loan also increases. At 10% interest paying off the loan takes almost 24 years in a 30 year mortgage and at 14% interest rate paying off of the home loan takes over 25 years for the same mortgage term.

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## 3 Great Uses For A Mortgage Calculator

Most people use a mortgage calculator to estimate the payment on a new mortgage, but it can be used for other purposes, too.

1. Planning to pay off your mortgage early.

By the time a 30-year fixed-rate mortgage is paid off, the typical mortgage holder will have made total interest payments significantly larger than the original principal on the loan.

The “Extra payments” functionality of mortgage calculator to find out how you can shorten your term and net big savings by paying extra money toward your loan’s principal each month, every year or even just one time.

To calculate the savings, enter a hypothetical amount into one of the payment categories (monthly, yearly or one-time) and then click “Show/Recalculate Amortization Table” to see how much interest you’ll end up paying and your new payoff date.

2. Decide if an ARM is worth the risk.

The lower initial interest rate of an adjustable-rate mortgage, or ARM, can be tempting. But while an ARM may be appropriate for some borrowers, others may find that the lower initial interest rate won’t cut their monthly payments as much as they think.

To get an idea of how much you’ll really save initially, try entering the ARM interest rate into the mortgage calculator, leaving the term as 30 years. Then, compare those payments to the payments you get when you enter the rate for a conventional 30-year fixed mortgage. Doing so may confirm your initial hopes about the benefits of an ARM — or give you a reality check about whether the potential plusses of an ARM really outweigh the risks.

3. Find out when to get rid of private mortgage insurance.

You can use the mortgage calculator to determine when you’ll have 20 percent equity in your home. This percentage is the magic number for requesting that a lender wave private mortgage insurance requirement.

Simply enter in the original amount of your mortgage and the date you closed, and click “Show/Recalculate Amortization Table.” Then, multiply your original mortgage amount by 0.8 and match the result to the closest number on the far-right column of the amortization table to find out when you’ll reach 20 percent equity.

## Saving Money on Mortgage

You can save money on your mortgage loan by having to pay the least amount of interest as possible.  This is done by choosing the shortest amortization period and the lowest amount of interest-rate possible.  Though you will save money by choosing a short amortization period it will definitely put more of a burden on your finances by increasing the amount of your monthly installments.  You need to balance this with the amount that you can actually afford to pay.  While saving money in the long run may seem like a good idea high installment on the mortgage can make financial conditions uncomfortable few on a daily basis specially since the mortgage is going to last for a long time.

Another way of saving money on a mortgage loan is to ensure that your mortgage contract allows you to make down payments and lump-sum payments on the principal amount whenever you can afford to without any penalty fee of charges.  This means that every time you have a windfall gain or have an increase in income due to a promotion in the future you can use that extra money towards the principal amount of your mortgage. Reducing the principal amount in this manner will also decreased the amount of interest that you need to pay.  You can choose a longer amortization period to keep your monthly installments low and keep making down payments on the principal amount as and when you can.  Every little bit that you can contribute towards the principal amount in a lump sum will make a large difference towards the overall money that you pay as interest.  It will go a long way in paying off your mortgage before the amortization period is over.
At the same time the lender should also provide you with the facility of increasing the amount of your monthly payments during the time that you have extra cash flow.  You can always switch back to your earlier original and your installment amount when you need the extra money for other important purpose.

Most of the lenders employ certain restrictions against the number of times of the amount by which you can increase your monthly installments.  Discuss this with your lender and see how you can manage it with the financial changes that you anticipate in the future.

Any extra payment that you can make on your mortgage be it a lump sum amount or an increase in the monthly installments that goes directly towards paying off the principal amount will reduce the balance of your mortgage and save you a lot of money on interest in the long run.