Simple Mortgage Payment Calculator
So you are ready to buy that house on the hill, with the white picket fence, and room for 2.5 children. Ah, but first you need to make sure you can afford the monthly payment.
You also want to keep things simple, and that's why you arrived at Raving Roo's Simple Mortgage Payment Calculator. Enter your loan information to see if the house of your dreams will fit within your monthly budget. Now isn't that sublime?
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Instructions: Enter numbers and decimal points. No commas or other characters.
This is your principal + interest payment, or in other words, what you send to the bank each month. But remember, you will also have to
budget for homeowners insurance, real estate taxes, and if you are unable to afford a 20% down payment, Private Mortgage Insurance (PMI).
These additional costs could increase your monthly outlay by as much 50%, sometimes more.
Mortgage Terminology
In the most basic terms, mortgage "principal" is your outstanding balance. Your mortgage payment consists of interest (see below) and principal.
Interest is the cost of the loan, and this goes directly to the bank. The principal portion of the payment goes directly toward your mortgage balance.
The principal portion of your mortgage payment increases your equity stake in your home. If your home is worth $100,000, and if your outstanding mortgage
balance is $80,000, and your next mortgage payment is $200 principal + $500 interest ($700 total), when the payment is applied, your equity stake will go
from $20,000 to $20,200.
Interest is the cost of the mortgage. This is how the bank makes money. Over the duration of a typical 30 year mortgage, interest could potentially
cost you 2x the purchase price of your home! Each mortgage payment is principal + interest, with the interest going directly to the
bank that services your loan.
Important: Mortgage interest can be deducted from your taxable income. It's a gift from Uncle Sam, encouraging home onwership.
Typical mortgage requirements stipulate that you need a 20% down payment on your new home purchase. If you are unable to afford a 20% down payment,
the mortgage industry has come up with a way to help shield their risk, it's called Private Mortgage Insurance (PMI). This insurnace policy protects
the bank servicing your mortgage in the event you default. It should be noted that this is an insurance scenario where the person
paying the premium (you) is not the beneficiary (the mortgage company). With PMI, you might be able to have a down payment as little as
10%, 5% or less, with the cost of PMI a direct inverse of the amount of your down payment. After all, the less cash you have up front, the more risk
for the mortgage company.
