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Mortgage Calculator

Have you ever applied for a loan and realized (when it was too late) that you could have paid less if you did the math first?

Whether you’re a first time home buyer or not, a mortgage calculator can help you find the best loan in the market.

Use Homeflow’s mortgage calculator to estimate your monthly mortgage payments!

Aside from the mortgage itself, you can include payments for maintenance fees, property taxes, homeowners’ association fees, private mortgage insurance, and home insurance. These add-on expenses may appear minimal, but they add up and ruin your budget.

See how your monthly payments change based on home value, down payment, interest rate, and loan term.

Buying a home is a long-term commitment, and it’s better to have a more accurate picture of all the expenses involved. This mortgage calculator helps you do the math yourself.

And here’s a bonus tip —do several calculations based on different scenarios. Record everything and compare how your payments change.

Mortgage refers to a loan secured by a property or a piece of real estate. But most of the time, it’s used for loans where a piece of real estate serves as collateral.

Usually, lenders use the term chattel mortgage when referring to loans where properties (like cars) serve as collateral.

A mortgage can have many names such as home loan and real property loan. Although these names and programs may differ, they work in the same way —the lender pays for your home or property and you pay the lender back with interest.

Mortgage may also refer to the loan instrument you sign when you get a loan. Sometimes called Mortgage Agreement or Deed of Trust, this document details the terms of the loan including the number of years you agree to pay it back, the interest, and monthly payments.

By signing the mortgage, you agree to surrender the property used as collateral if you can’t pay the loan back on time. Your lender may also sell the property and use the proceeds to pay off your loan. If there’s a deficiency, you might still owe money to your lender.

To make matters worse, a foreclosure will leave a large dent on your credit score. Your score may go down by 85 to 160 points.

But don’t let this bleak picture scare you.

Mortgage is the most common personal loan among US households. And while it’s impossible to predict the future, you can take steps to evaluate your financial situation before getting a mortgage.

Start with using a mortgage calculator to help you assess how monthly loan payments affect your finances. Doing this step saves you from entering a financial commitment you can’t afford with your current lifestyle.

Explanation of Mortgage Terms

Your mortgage may use certain terms that you may be unfamiliar with. You may also encounter these same terms when using a mortgage calculator. Here’s a rundown of all those fancy words and some insights to help you understand them better.

Mortgage rates

Your mortgage rate is the interest rate charged by your lender. The interest rate you see is always per annum or year unless otherwise stated. Different factors affect your mortgage rate —this can include your location, credit score, and loan type.

Most of the time, mortgage interest rates will refer to the nominal rate. Don’t confuse this with the annual percentage rate or APR.

Down payment

Unless you qualify for a loan program with zero down payment like VA loan, you have to put money upfront. The down payment is the money you pay the seller in cash, then your lender will pay the rest. Moreover, the down payment you paid will be your equity in your home.

If you buy a home listed at $100K and put down a 20% down payment or $20K, you only need to borrow $80K from a lender. The $20K you paid is also your equity in the home.

Most conventional loans require a down payment of 20%. However, there are other options for buyers looking for loans with a lower down payment. The lowest down payment for FHA loans, for instance, is only 3.5%.

Loan Term

Usually expressed in years, the loan term refers to how long you want to pay for your loan. Most loans have a term of 15 or 30 years.

Buyers with a stable job and have enough funds saved may opt for a 15-year term. Buyers who want more wiggle room in case they fall on hard times may consider the 30-year loan term.

Private Mortgage Insurance

Better known by its acronym PMI, this insurance will reimburse the lender in case your property gets foreclosed and the proceeds from the sale are not enough to pay off your loan. Borrowers who can’t afford the 20% down payment will most likely pay PMI premiums.

Although actual premiums may vary, the cost of PMI is around 0.05% of your loan amount. You may also stop paying the PMI when your loan-to-value ratio reaches 80%. Once your total payments already cover 20% of your home equity, your lender may allow you to stop paying PMI premiums.

In most cases, you only need to pay PMI if you get a conventional loan. If you go for an FHA loan, you need to pay FHA mortgage insurance regardless of your down payment and credit score. Meanwhile, VA loans don’t require private mortgage insurance.

Whatever the case may be, your Loan Estimate and your Closing Disclosure should disclose any PMI payments.

Mortgage Insurance

When getting a mortgage, you can also get the Mortgage Protection Insurance or MPI. Also known as Mortgage Insurance, this coverage will protect you and your family in case you die or fall on hard times.

Depending on your policy, this MPI helps you pay off the loan if you lose your job, get ill or injured, or die. However, this insurance is often more expensive than a regular life insurance policy.

So, it’s better to assess if your current life insurance policy and any other insurance cover mortgage repayments. Like PMI, your lender may charge this on top of your loan.

Home Insurance

When you get a mortgage, most lenders will require you to get homeowners insurance for the property. This coverage protects the home including all your personal property and will pay for legal and medical bills if someone gets injured on your property.

In the US, the average annual cost of home insurance is $1,200 or about $100 every month. However, the cost varies from state to state.

Insurance premiums are highest in Louisiana, Texas, and Florida and could be around $1,900. In contrast, property owners in states like Utah, Oregon, and Idaho only need to pay about $700 every year ($58 per month).

Check the average insurance cost in your state here.

HOA Fees

Homeowners Association or HOA Fees will cover property repairs and maintenance expenses in your community. Your homeowners’ association may collect these fees monthly or annually from community members. On average, you have to pay around $300 for HOA fees but actual fees can be as low as $100 to as high as $700 or more depending on where you live.

Property Taxes

This refers to the tax you pay the local government every year based on your property’s assessed value. In 2019, the average household in the US pays about $2,279 on property taxes - this translates to around $190 every month. You can estimate how much you would likely pay for property taxes with this property tax calculator.

Types of Mortgages

There are many mortgage programs for homeowners. So, before you shop for the best rates, it pays to learn about your options.

FHA Loan

FHA stands for Federal Housing Administration, a department under the Department of Housing and Urban Development, which provides mortgage insurance on loans issued by their network of lenders.

FHA loans are among the most convenient loan option with a down payment of as low as 3.5%. Even borrowers with credit scores (between 500 to 580) only need to pay a 10% down payment. On the downside, all borrowers have to pay FHA mortgage insurance premiums.

In 2019, around 17% of home buyers prefer this housing loan. Among different age groups, about 27% of home buyers who are 28 and younger took an FHA loan according to a National Association of Realtors report.

FHA loans have a maximum limit. So, you need to consider the price of the property you want to buy. In 2020, for instance, the maximum loan is $331,760 for most areas and up to $765,600 if you live in an area with more expensive property values.

Applying for an FHA loan is a viable option for buyers looking to buy owner-occupied homes. However, if you’re planning to buy a condo, consider other financing options since many lenders reject FHA applications for condominiums.

VA Loan

Eligible veterans, active-duty personnel who rendered at least 90 days of continuous service, military spouses, reserves, National Guard members, and employees of certain government organizations may be eligible for the Veterans Affairs loan.

The VA loan’s zero down payment nature makes it attractive to many buyers. However, you can only use this loan to finance your primary residence. There is also a 2.3% funding fee based on the loan amount for first-time buyers and a 3.6% fee for subsequent loans. Most lenders approve VA loan applications from borrowers with a credit score of around 620.

In 2019, about 13% of all home buyers financed the purchase through a VA loan. As expected, this type of loan was most popular with veterans aged 64 to 72 years old.

Like FHA loans, VA loans used to have a maximum loan amount. However, the Blue Water Navy Vietnam Veterans Act of 2019 removed this limit for qualified borrowers. Starting on January 1, 2020, there will be no maximum limit for VA loans.

The conforming loan limit, which is $510,400 (2020) for most counties, will only apply to borrowers with more than one VA loan or those who defaulted on a previous loan.

VA loans provide much flexibility for eligible borrowers. Despite the zero down payment program, it does not require borrowers to pay PMI. There are no prepayment fees either. Veterans and active-duty military personnel looking to financing their primary residence would be the best candidates for this type of loan.

USDA Loan

United States Department of Agriculture loans finances single-family home purchases of low to middle-income families. Also known as Rural Housing Loans, USDA loan rates are typically lower than FHA, VA, and conventional home loans.

To be eligible for a USDA loan, you need to meet the maximum income requirement which is $86,850 for a household with 1 to 4 members and $114,650 for households with 5 to 8 members. For high-cost locales, the maximum household income is $212,550 and $280,550, respectively.

With USDA loans, homebuyers can finance 100% of the home value. Lenders typically charge mortgage insurance premiums at reduced rates for these loans. Borrowers may also finance closing and include it in the total loan value.

If you’re planning to buy a single-family home inside a USDA designated geographical location, consider getting a USDA loan. Borrowers in rural and suburban areas who can’t qualify for a traditional mortgage would be the best candidates for this type of loan.

Conventional Mortgage

Conventional Mortgage is a catchall term for home loans not secured by government entities like FHA, USDA, and VA. Home loans offered by private lenders such as banks and credit unions and the government-sponsored entities Freddie Mac and Fannie Mae fall under this category.

Among many home loans, conventional mortgage has the tightest credit guideline. You need to establish your creditworthiness to get a conventional mortgage. Lenders often require a 20% down payment but some loan programs allow borrowers to put down as little as 3%. Borrowers who can’t afford to put down this money have to pay private mortgage insurance premiums as part of their loan.

Borrowers also need to present proof of income, possess a credit score of at least 680, and have an acceptable debt-to-income ratio.

Of all loan types, a conventional mortgage is still the most popular with home buyers. Around 61% of all buyers financed the purchase through a conventional mortgage. This type of loan was least popular with buyers who are 28 years and younger.

A conventional mortgage allows much flexibility to home buyers. However, this option is best for buyers with high credit scores. Lenders prefer borrowers with a score of at least 700 while those with scores of around 740 take advantage of certain perks like lower interest rates and better terms.

Borrowers who apply for a conventional loan under Fannie Mae or Freddie Mac also need to consider the conforming limit, which is $510,400 for 2020.

Conventional loans often have lower interest rates than FHA loans. You can also use this loan to finance an investment property or a second home.

Fixed-Rate Mortgage

A fixed-rate mortgage is a type of home loan with a uniform interest rate for the life or term of the loan. Most lenders offer fixed-rate home loans with a 15 or 30-year term. However, you can shorten or lengthen the term.

About 90% of all homebuyers in 2019 applied for a fixed-rate mortgage. This loan type is highly advisable for a first time home buyer since monthly payments stable and it’s more budget-friendly.

Homeflow’s mortgage calculator supports fixed-rate home loans. Use it to check how much you’ll pay when you get a fixed-rate mortgage.

ARM Mortgage

An adjustable-rate mortgage refers to loans where the benchmarked index dictates the movement of the interest rate. This index may be the LIBOR rate, fed funds rate, or one-year treasury bill rate.

ARM home loans usually offer a low fixed interest rate, lower than fixed-rate loans, in the first three to 10 years. After the lock-in period, the interest rate may go higher or lower depending on the movement of the indexed rate.

This type of home loan works for moderate-income buyers who are planning to pay off the loan in a few years.

Jumbo Loan

Jumbo loans refer to conventional mortgages with a loan value over the conforming limit. This means that the buyer can’t get a Fannie Mae or Freddie Mac loan to finance the purchase. Most borrowers get these loans to buy properties in expensive locales or to finance luxury homes.

With the changes in VA loan guidelines, eligible borrowers may now get a VA loan to finance non-conforming loans.

Reverse Mortgage

A reverse mortgage is a type of loan for borrowers who are 62 and above to cash out their equity in a home without selling the property. The lender will pay you but, in most cases, you don’t have to pay back the loan as long as you live in the property.

If you die, move or sell the mortgaged home, you or your heirs have to pay the mortgage. Sometimes, the lender has to sell the property to pay the loan.

Mortgage Application Process: 15-Step Guide to Getting a Mortgage

  • Research the types of loans available to you.
  • Learn about the cost of getting a mortgage.
  • Get in touch with multiple lenders and mortgage brokers to learn about their loan programs.
  • Get a prequalification letter from a bank to start looking for properties
  • Prepare all the documents you need to apply for a loan.
  • Wait for a seller to accept your offer.
  • Sign the real estate purchase agreement.
  • Start your formal mortgage application and submit all loan requirements. Respond to any lender inquiry promptly.
  • Do a title search.
  • Order a home inspection.
  • Purchase homeowners’ insurance and pay one year in advance.
  • Wait for your lender to do an appraisal and complete the underwriting process.
  • Lock in the interest rate and wait for the final loan approval
  • Revise the Closing Disclosure.
  • Close on your home.

You need to know how should spend on a new home before you do some house hunting. It wouldn’t hurt to use the mortgage calculator to see how much you have to pay for a home.

It pays to be realistic and we suggest using the 28/36 rule that most lenders use.

Here’s what this rule is all about.

Lenders will only approve your loan if the ratio of your monthly payment to your monthly pre-tax income is 28%. If you’re earning $10K a month, your monthly loan payment should be $2.8K or less.

Lenders will always look at your debt-to-income or DTI and your credit score. Ideally, the percentage of your total debt including car loans and credit card loans over your monthly pre-tax income. Someone who pays $3K a month and earns a monthly income of $10K has a debt-to-income ratio of 30% ($3K divided by $10K).

Lenders often approve loans if the borrower has a DTI of 36% or lower. However, some lenders allow higher DTIs —43% for FHA loans and 41% for USDA and VA loans.

You can also use this mortgage affordability calculator to calculate how much house you can afford.

With so many mortgage lenders in the US, it’s confusing where to start looking. To get you started, here’s a list of the 24 best mortgage lenders in the US.

Don’t forget to consider your own bank, reputable local lenders and entertain suggestions from your agent. Ultimately, the decision depends on how much you need and the terms you want.

When you’re shopping for loans, contact multiple lenders. If dealing with several lenders is too inconvenient for you, consider hiring a mortgage broker. So, the short answer is this —it all depends on your situation and lifestyle.

Mortgage brokers can introduce you to loan programs offered by different mortgage lenders. Most of the time, lenders will pay mortgage brokers based on your loan amount. Sometimes, these fees may end up as an additional expense on your part.

Going directly to a lender means skipping broker fees, but you need to complete the whole process yourself. However, if you already settled on a bank and you maintain an existing account with that lender, a broker may be unnecessary.

Learn more about mortgage brokers here.

Mortgage Interest Rates

Although mortgage interest rates today are low, it never hurts to pay attention to how interest rates move. For reference, long-term US mortgage interest rate as of Jan. 24 was 3.60% for 30-year fixed loans and 3.04% for 15-year fixed loans.

Always compare the interest rates between lenders to find the most affordable rate. Remember that a slight decrease in the interest rate can have a significant impact on a long-term loan.

A brief intro. Below it we will add ads to lenders

Mortgage Questions

Fannie Mae or Federal National Mortgage Association is a government-sponsored entity that buys conforming mortgage loans mostly from commercial banks. Fannie Mae can buy conventional loans, FHA loans, and VA loans.

Take note that Fannie Mae is not a mortgage lender. Its main role is to guarantee and buy loans to make it possible for accredited-lenders to provide affordable rates to borrowers.

Since Fannie Mae deals with bigger banks, credit checks are stricter. Eligibility requirements also differ for each loan program.

Federal Home Loan Mortgage Corporation or Freddie Mac is also a government-sponsored entity like Fannie Mae. Most of the loans insured by Freddie Mac are from thrift banks, hence it is smaller compared to Fannie Mae.

Sometimes, Freddie Mac will approve a loan rejected by Fannie Mae since it has more flexible credit guidelines. But Freddie Mac will only secure conventional and VA loans.

Tip: Find a lender that offers both Fannie Mae and Freddie Mac loans. This way, if your loan is not approvable based on Fannie Mae’s criteria, your lender try if your loan gets approved under Freddie Mac.

Using borrowed funds to buy your dream home has benefits, but it is costly. You need to pay back the borrowed funds with interest and this can be a sizeable amount.

If your goal is to minimize the cost of your mortgage, these tips may help you reduce the interest you pay on your loan.

Tip #1: Pay Back the Loan Earlier

The longer the term the higher the interest rates you have to pay. If you have extra cash, you can use that money to pay off the loan. But before you do this, think of other ways to use your money like investments offering high-interest rates —significantly higher than your mortgage interest rates.

Warning: Prepayment fees may apply

BEFORE you do this, check for prepayment penalties.

Federal law only allows lenders to charge prepayment fees in the first three years of your mortgage. There’s also a cap on these penalties.

In the first two years, lenders can only impose a penalty of up to 2% of the outstanding balance of the loan. In the third year, lenders can only charge up to 1% of your outstanding balance.

Although lenders are careful of imposing additional fees if you pay early, you should still look out for these fees. And, don’t forget to compare the interest savings against the penalty you’d have to pay.

Tip #2: Make Bi-weekly Payments Instead of Monthly Payments

By default, loans are payable monthly but instead of doing this, divide those monthly payments into two and pay that amount every two weeks. So, if you need to pay $2K a month, pay $1k every two weeks.

This small change allows you to make 1 extra payment each year which should, ideally, be applied against the principal.

Since there are 52 weeks a year, you would end up making 26 payments or 13 monthly payments instead of 12. This decreases not just your interest payments but also the loan term.

Like making early payments, check your lender’s policy when it comes to advance payments.

Tip #3: Consider Refinancing

What are the current interest rates compared to your mortgage rate? If you find a lender that offers a lower interest rate for your loan, consider refinancing.

Two things affect the interest due on your loan —your outstanding balance and the interest rate. If you already did what you can to reduce the outstanding balance, it’s time to focus on the interest rate.

While you can’t change mortgage interest rates on your home loan, you can refinance the loan.

Refinancing is the process of getting a new loan with better terms (lower interest rates, shorter term, etc.) to pay off the old loan. You can use your current lender or look for a new one.

Before you decide, consider loan origination costs and other fees. You can also use a mortgage calculator to see how much you’ll save if you refinance your home loan.

Bonus tip: Consider getting life insurance with a loan repayment feature.

If you don’t have MPI, get life insurance which will also pay off your loan balance if you die or become unable to earn funds to pay your mortgage. By extending your life insurance coverage to your mortgage, you or your heirs won’t have to worry about paying off the debt if something happens to you.