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Everybody who has a decent job wants to buy a house. However, the question that everybody should ask is – can I afford to buy a new house? This is a complicated question that needs a lot of thought. The simplest way of answering the question is to look at the monthly rent you normally pay. If the rent is enough to service a mortgage for a similar-sized home, you may be able to afford to buy a home. However, you should remember that you’ll need to pay a deposit to secure the mortgage. You will most likely need around 20% of the purchase price, but this differs from one lender to the next. Keep reading to learn how to calculate your mortgage payments.
How to Calculate Your Mortgage Repayments
Your mortgage payments depend on a variety of factors, including:
i) Asking Price
The market value of the home you want to buy will determine the amount of money you’ll pay every month. Most lenders offer a repayment period of 30 years at most. When the loan amount is divided by 360 months, and interest added, the monthly installments should be affordable. The higher the value of the house, the higher the monthly installments will be.
ii) Repayment Period
The term of the loan has a big effect on monthly installments and affordability. The longer the repayment period, the lower the monthly installments. If you prefer a 10-year mortgage to a 20-year mortgage, but the monthly installments seem to be beyond your financial reach, you can opt for the 15, 20, or 30-year mortgage. This will make the installments more affordable.
iii) Interest Rate
Interest rates usually vary from time to time. Since you want an affordable mortgage, consider shopping around for the most competitively-priced mortgages. Timing can also help you find the most affordable mortgage. If you manage to find a low-interest mortgage, be sure to ask the lender to lock the interest to ensure it does not fluctuate with time. This will make the mortgage not only more affordable but also predictable.
iv) Insurance and Other Costs
Lenders usually charge processing fees and insurance premiums among other types of upfront costs. These costs are usually added to the principal and can inflate the cost of buying a new house. That is why shopping around is always recommended. Please note that paying a smaller deposit than required may force the lender to impose higher insurance premiums than normal. To make your mortgage more affordable, therefore, be sure to save up for the minimum down payment required by your preferred lender.
Using Online Mortgage Calculators
The internet has made life easier for consumers. This is because there is a lot of information online. You’ll also find online tools to help you make an informed decision. For instance, an online mortgage calculator can help you calculate how much a mortgage will cost you every month. You only need to enter the term of the mortgage, annual interest rate, and value of the house you want to buy. It is important to note, however, that the results you obtain are not final. You still have to visit a mortgage broker or a mortgage lender to get preapproved and have the specialists calculate your mortgage repayments. That said, online calculators can give you a good idea of what to expect before you decide to visit the bank or talk to a mortgage broker.
Refinancing a Mortgage
If you experience problems paying your mortgage after buying a new house, you should always remember that you can refinance the mortgage to extend the repayment period and lower the monthly payments. This will make the mortgage more affordable.
