When you first decide to buy a house, it can be tough to know exactly what to look for. Can you afford that gorgeous new build you’ve been eyeing in the development across town? Or should you shop for a townhouse or a starter home instead? Should you focus on your interest rate, or does it make more sense to put down a bigger down payment? There’s a simple way to discover how much home you can actually afford: the mortgage calculator.
Fairway of the Carolinas offers a detailed mortgage calculator to help you find the best Charlotte home loans. It helps you see your various options with different home prices, interest rates, and more, so your Charlotte mortgage broker can help you meet your budget. And once you know your budget, you can start planning!
What the Mortgage Calculator Does
A mortgage calculator takes all of the relevant numbers related to buying a home and computes the monthly mortgage cost. This is important because there are so many variables when it comes to estimating your mortgage cost. Changing the amount you put down for a down payment, the interest rate you get from your lender, even whether or not you buy a home in a Charlotte homeowner’s association (HOA) neighborhood will all affect the monthly bill you pay to your lender when you’ve bought your home.
Your monthly mortgage payment will greatly affect your overall budget; it’s often 25% to 30% of a person’s average monthly bills. So it’s important to get the mortgage right, so you can have enough money left over for the occasional treat as well as to help you reach other goals, such as a wedding, travel, or college costs.
How to use the mortgage calculator
Using our mortgage calculator is one of the first steps in the mortgage planning process. Enter the figures in the right boxes of the calculator until you’ve gone through every section. If certain sections of the mortgage calculator don’t apply to you, you can enter ‘0’.
Before you begin, it will help to look at each section of the calculator to see what figures are needed and then find the numbers that correspond to your situation. Gather all of your numbers and notes in one place before you run the calculator. Otherwise, you’ll have to stop at each section to go find the information you need!
Using the mortgage calculator will let you see how different factors affect your monthly payment.
The first section of the mortgage calculator requires you to enter details about your prospective home and your finances.
In this section, you can list the purchase price of the home. See how different home prices will affect your final payment. Experiment with different property values; how will your mortgage change for a $150,000 home, a $300,000 home, a $600,000 home? The value of the home is also an important consideration when it comes to figuring out how much equity you’ll have in the home, and when.
The amortization period refers to how long your mortgage will be – usually measured in years. Common amortization periods are 15 years or 30 years.
While it would be great to have your mortgage paid off in 15 years, you might be more comfortable with the lower monthly payment you could get with a 30-year mortgage. Experiment with 10-, 15-, 20-, and 30-year mortgage lengths. Typically, your payments will be higher with shorter mortgage terms — but you’ll pay much less interest over time.
How much will you be able to put down as a down payment? Be realistic, and make sure you set aside some funds for your closing costs.
Notice how your mortgage costs will change depending on how much you put down. Try 3%, which is what you could put down with an FHA loan, as well as 5%, 10%, 20% (or even more if you can afford it). See how it affects your total costs over time. And keep in mind that a flat amount will be a greater percentage of a lower-priced home, than a more expensive one. Putting down $50,000 will be 25% of a $200,000 home, but only 10% of a $500,000 home.
PMI refers to private mortgage insurance. If you take out a loan with less than 20% down, you’ll be required to pay your lender PMI. Usually, PMI will be between 0.5% and 2% of your home value. Try entering different values to see how they affect your mortgage payment if you do not know how much your PMI will be. And see how much PMI affects your payment if you do not have to pay it at all.
This is the amount you’ll actually finance. Subtract your down payment from the property value or list price to determine the mortgage amount. If the home costs $250,000, and you have $25,000 to put down, you’ll finance $225,000. Or, what if you could get the seller to agree to a concession on the price in exchange for something else? That might affect the amount you mortgage. Or if you put less money down but finance more for a shorter or longer amount of time — experiment with the figures to see how they will impact your overall loan.
Mortgage payment frequency
How often will you make your mortgage payments? Monthly is most common, but many homeowners find that making biweekly payments helps them pay their mortgage off sooner. See how much faster you might be able to build equity in your home with biweekly mortgage payments vs. monthly mortgage payments.
This is the interest rate your lender will charge you for the loan. Notice how adjusting the interest rate higher or lower will affect the overall amount of interest you pay as well as your monthly payment. This will help you visualize how your interest rate will affect your mortgage as well as how it interacts with other factors such as mortgage amount and amortization period.
Enter the month and year you will begin repaying the loan. This is useful for calculating when the mortgage will be paid off as well as when you’ll hit important milestones, such as 20% equity in your home. That’s usually the point where you can drop PMI payments.
In addition to the mortgage itself, there may be other costs that are bundled together in your payment. These are important to think about, too — if you don’t, you may be surprised at your final monthly payment.
For instance, if your closing costs are being rolled into the mortgage, note them here. They will increase your overall mortgage amount.
Many lenders will take care of your yearly property taxes, holding the funds in escrow for you and then paying them when due. You pay a portion of the taxes each month in your mortgage payment, and the lender takes care of the rest. This is in addition to the principal and interest you owe your mortgage lender.
Lenders may also do the same for your homeowners insurance, holding the funds in escrow and paying the bill. Just like with property taxes, you pay a portion of the homeowners insurance each month along with your principal and interest payment, and your lender takes care of sending the insurance payments to the insurer at the right time.
For homes that are in a homeowners’ association, you’ll enter your monthly HOA fees here. Since they’re a part of owning a home in that neighborhood, you need to account for these fees in your monthly payment.
Running the mortgage calculator
Once you have entered all the relevant information, click “Calculate Mortgage.” The mortgage calculator will return a number that shows you your monthly mortgage payment and what goes into it:
- Principal and interest
- Monthly extra payment
- Property taxes
- Homeowners insurance
- HOA fees
By playing with different numbers, you can see how they affect your eventual monthly mortgage payment. This may inspire you to shop for a less expensive home, or you may be motivated to seek discounts on insurance or put down a larger down payment to avoid paying PMI.
Don’t Go Putting an Offer on a Home just yet!
The mortgage calculator is a great way to see all of your different options for buying a home but it does not mean you can run and put an offer in on a home. You will still need a Pre-Approval from one of our certified mortgage planners at Fairway of the Carolinas! We are happy to offer personalized assistance to help you figure out what numbers to use and even run more specific reports. Contact our Charlotte home loan experts at any time for help!