What Is It?
Are you tired of calculating your monthly rates? Do you need an out of the box solution to help you with this cumbersome process? This Fixed-Rate mortgage calculator lets you determine the monthly payments you will have to make based on specific predetermined parameters. For instance, Loan Amount, Interest Rates, Term in Years, the downpayment you have made, etc.
In this article, let’s find out how to calculate monthly home installments based on the fixed-rate, the number of years, and several other factors. Our calculator helps you get an insight into what to expect before you get into any mortgage plan. Most importantly, it helps you to plan your finances.
How Does It Work?
Let’s say you have decided to buy a beautiful condo and are looking for mortgage loans with fixed monthly rates. You can rely on this calculator to find out your monthly installments if you determine your budget and how much you can contribute to the initial downpayment.
As the name suggests, Fixed interest rates offer you a ‘fixed’ rate, which doesn’t vary till the end of your loan period. In other words, for your entire loan period, you pay a fixed monthly payment.
When you enter the loan amount, downpayment, fixed interest rate, and the years until you pay your loan, you get the estimate of your monthly payment and the loan amount you would have paid at the end of your loan period.
The Math Behind It
To calculate the monthly installments, you should know the below formula.
P = L[c(1 + c)n]/[(1 + c)n – 1]
P is your monthly principal,
L is the loan amount,
C is the monthly interest rate,
N is your loan period in months.
Once you have determined your loan amount, you can add the property taxes, insurance, and PMI, if you have any to your monthly installments.
Curious to know a little more about the formula? Check out this link.
Pros And Cons
Why should you choose a fixed rate as opposed to a variable rate? There are a few pros and cons.
If you think the interest rates could surge a bit in the following years, or if you prefer predictable installments or payments and above all, if you plan to stay in your house for a long time, fixed rates should be a right choice for you.
Variable rates have lower interest rates, and so are risky. Therefore, whenever the market is volatile, the rates increase, and the borrowers should be prepared to pay higher installments. However, if you decide to promptly pay off your short-term loans, variable rates could suit you well.
Further, 5/1 is another category, here you have a fixed rate for five years, and then the rate is adjusted annually.
Factors That Determine The Fixed Rate
Credit Score Matters
A good credit score matters. You must build up a good credit score before applying for a loan. The first and foremost thing a lender does is run your credit report whenever you apply for a fixed-rate mortgage. He determines your interest rate based on how well you have paid off your debts and credit card payments. To emphasize, you must build up your credit score before applying for a home loan.
You can look up for your credit score using a lot of available tools online.
Loan To Value Ratio
The amount of loan you apply concerning the home’s value matters as well. If you pay a lower down payment, your loan amount increases, therefore, banks consider it risky, consequently increasing the interest rates.
You have to deal with high-interest rates if you run into a combination of high LTV with a low credit score.
Apart from the above two, you have to consider a few factors like the location of your house, and the general economic factors like the current market, and inflation, etc.
How To Calculate Fixed Mortgage Based On Various Parameters
In this section, let’s discuss various scenarios considered to calculate your monthly installments using our fixed-rate calculator.
How To Calculate Based On Varied Loan Period
A loan period is either 10,15 or 30 years. So, if you want a ballpark estimate of how much your monthly installments would be, the loan term is one of the key deciders. You would not want a shorter loan period to pay hefty installments and not extended loan periods so that you end up paying higher interest than your original loan amount.
For instance, if Bob buys a townhouse for $350,000 and opts for a fixed rate of 2.625% for a 10-year loan period and pays 5% as down payment, his average monthly payment is around $4000, and he has to pay about $77000 for interests.
But if he chooses a 30-year loan period, his monthly installments come down to around $2200, and he has to lok forward to a pretty long loan term. So, the total number of years plays a pivotal role.
How To Calculate Based On Your Down Payment
It would be best if you did not venture into buying a home without the initial upfront payment costs. Banks and mortgage lenders prefer a minimum of 5% down payment to be paid upfront, whenever you apply for home loans. Down Payments could range between 5-20% of your home value. In other words, the higher you pay in advance, your monthly installments would become lower.
To explain, let’s assume you are planning to buy a single-family home for around $450,000, with rates of 3.437%. If you plan to make a downpayment of 5%, which is about $22500, your monthly EMI would be close to $3100, on the other hand, if you pay more than 10-20% upfront, which is between $45000 to $90000, the monthly payment drastically decreases and eases your payments.
Another critical point to remember is that PMI is required if you make a downpayment of less than 20%. Private Mortgage Insurance (PMI) is the insurance you pay to the lender if he thinks the investment could be risky.
It protects the banks in case you default on your loan repayments and during scenarios like foreclosure. PMI is usually added to your monthly premium payments, or you can pay upfront during the closing.
So, it is essential to realize that the down payment amount is one yet another key deciders.
How To Calculate Based On Your Loan Amount
The loan amount is an essential factor to consider while calculating your payments. If you borrow large loan amounts, your monthly payment will be on the higher side, so plan your finances before investing in a house.
To demonstrate, Frank buys a huge single-family detached house with a sale price of $650000. He is not ready to pay more than 5% of the downpayment and ends up borrowing close to $617000. With a 30-year fixed loan plan, at a fixed rate of 3.243%, he ends up paying close to $4000 every month. Further, his monthly payments include PMI, property taxes, and insurance as well.
But, by paying around 20% upfront, he could decrease his loan amount to $632000, and his recurring monthly installments come down to $3200.
To sum up, if math isn’t your cup of tea, try this hassle-free fixed mortgage calculator to find your monthly mortgage payment. Be smart and plan your finances.
If you like this one, you might check out our other diverse calculators here.