Buying Your First House: How to Calculate Mortgage Payments

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I am presently looking into buying my first property. So the first thing I did was to consult my financial advisor, who was able to estimate the mortgage amount I would qualify for based on my income, debt level and the neighbourhood I am want to settle in. Once I had an estimate of the amount that would be loaned to me, I looked for a way to calculate mortgage payments, in order to know:

 

  • When I would finish paying off my mortgage
  • How much would be my monthly payments
  • What down deposit I should put to earn equity as early as possible.
  • At which point I would qualify for a refinancing or a home equity line of credit (in case I need money for projects like renovation)
  • How my bank’s mortgage deal compares with other financial institutions

In order to make a solid budget, I predicted my mortgage payments with a brand new feature I added on this blog: A mortgage calculator. It is a very convenient tool that generates an amortization table. An amortization schedule is  a table that shows the portion of principal and interest in each payment you make to the mortgage, until it is paid off at the end of the term. Typically early payments are mostly allocated to paying interest, but as the maturity comes due, the portion of principal on your monthly payments increases.

How to calculate mortgage payments with the mortgage calculator

To use this mortgage calculator, enter the following information. Click on ‘calculate’ for monthly and annual payment summaries, then click on ‘amortization schedule’ at the bottom, and  your amortization schedule will appear in a new tab:

  • The amount of the mortgage (Principal)
  • The interest rate charged by your bank
  • The term of the mortgage (in years)
  • The amount of your down payment
  • The annual amount of property taxes
  • The annual amount of the property insurance (if applicable)
  • The monthly premium of Private Mortgage Insurance (PMI) if applicable
  • Any extra monthly payment

Note that the term of your mortgage here actually refers to your amortization period. For example, if you applied for a mortgage with a 5-year term but amortized over 25 years, it means it will take you 25 years to pay off the mortgage. So enter 25 in the ‘Term’ field of the calculator. The 5-year term is actually the period of time during which the bank will guarantee you a certain interest rate before renewing your contract. So you should recalculate your amortization schedule upon every renewal.

Here is the calculator. It is also available on the ‘tools’ section of the site at any moment. Have fun, and let me know what you think after using it.

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