While looking for a loan against property, knowing which loan type is suitable and why is paramount for a first-time buyer; this is a significant decision to decide which mortgage best suits your requirements with so many options available in the market.
There are two components to a mortgage: Principal and interest. Principal accounts for the loan amount while interest refers to the additional amount that the financial institution charges while lending money. During your term, you pay EMIs based on the loan amortization schedule. Loan against property interest rates that form the base of any calculation tends to vary depending on the lender, client profile, and the loan proposal.
People focus on the monthly payment, but there are other important features that you need to consider while calculating your mortgage payment.
To calculate a mortgage payment, you need a few details about the loan. Then, you can complete calculations by using free online calculators to get the numbers.
Read further to understand the working of the mortgage payments with an online calculator.
The Inputs required to calculate the mortgage amount
Start by accumulating the information required to calculate your payments and understand other factors of the loan. You need the following details.
- The loan amount or principal
- The annual interest rate on loan, but remember that this is not the APR, because the mortgage is paid monthly, not annually, and that creates a difference between the APR and the rate of interest
- The number of years you will consider to repay, also known as the term
- The number of annual payments, which would be 12 for monthly payments
- The type of loan: fixed-rate, interest-only, flexible, etc.
- The market value of the mortgage
- Your monthly revenue
Steps included while calculating the mortgage payments.
A mortgage payment includes four components: principal, loan against property interest rate, taxes, and insurance (PITI). Many buyers know about these expenses but are not prepared for it. These include homeowners association (HOA) fees, mortgage insurance, regular maintenance, utility bills, and significant repairs.
It’s necessary to know that your specific interest rate will depend on your overall credit score and debt-to-income.
The formula used for calculation:
M = P[r(1+r)^n/((1+r)^n)-1)]
M = the total monthly mortgage payment
P = the base loan amount.
r = your monthly interest rate. Lenders provide you with an annual rate so you’ll need to divide that figure by 12.
n = number of payments over the loan’s term. Multiply the number of years in your loan term by 12 to get the number of total payments for your loan.
The output received:
After feeding all the given inputs and calculating the mortgage payments based on the given formula, you receive the estimates for the following:
- Principal Amount
- Interest Rate and amount
- Repayment tenure
- Fees and other charges
- Property Tax
And so on.
A mortgage calculator is a tool to help you estimate your monthly mortgage payment and understand what and how much of it includes in the particular payment.