Calculating Your Mortgage, All the Numbers

Buying a home is one of the biggest financial decisions most families will make in a lifetime. It is both a large financial investment and an investment of your time. Plus, it’s a long-term commitment to the location in which you’ve chosen to live.

If you’re struggling to decide whether to continue renting or to buy, this article can help! It’s not a hasty decision to make, even if you do have the money. You want to ensure you are making the right choice for your family and your future. So, weigh all your options, create a plan, and then decide what is the best decision.

Part of the process is doing some major calculations. Sometimes math can seem a little overwhelming, especially when it’s concerning what is or is not in your bank account.

Let’s dive into some of the calculations and considerations you should make before you make the big decision.

If I have [x] down payment, how large of a loan am I qualified for?

In deciding how much you qualify for, there are many factors taken into consideration.

1. What’s your annual income?
2. What’s your current debt-to-income ratio?
3. How much down payment can you afford? (Traditionally, home loans require 20 percent down.)
4. What extra costs will need to be calculated?
   Property taxes
   b. Closing costs
   c. Insurance

Know that just because you qualify for a certain amount, that doesn’t mean that amount should be your standard. One of the biggest mistakes homebuyers make is taking on too much home, forgoing their ability to save.

This calculator can determine the amount you could qualify for. Note that there is no guarantee, as many factors are considered that are not accounted for in this calculator.

Should I take out a 15 or 30-year mortgage?

The numbers are significantly different when you consider paying for your home over 15 years versus 30 years. Let’s look at an example.

Say you have a home that’s worth $200,000. Your options are a 4 percent interest rate for 15 years and a 4.5 percent rate for 30 years. A 15-year term will save you approximately $98,000! That’s a significant amount of savings!

But not everyone is able to pay a larger monthly payment, and that’s OK. Remember, the more you’re able to save and build your down payment, the smaller loan amount you will need. With more savings up front, you might be able to handle a 15-year term which will, in the end, save you more money.

Take a look at this calculator to see how much you would save if you choose a 15-year loan.

If I make additional payments, how quickly can I pay off my mortgage?

As you are searching for a loan, ask if there are any penalties if you choose to pay off your home early. Also, if you do decide to pay extra a month, make sure this money is put toward the principal and not to the interest.

Sometimes reading about mortgages and talking about mortgages can be a little confusing, especially if you don’t understand all the lingo. So, here’s a great resource for you! These are easy-to-understand definitions  on as you tackle the home buying process.

Think you’re ready to apply for a home loan? Learn more about mortgages and the calculations we’ve discussed earlier by visiting our First Kentucky Mortgage Center Have questions? That’s expected! Give us a call today!