Question 1

How is monthly mortgage payment calculated?

Accepted Answer

Monthly mortgage payment is calculated using the loan amount, interest rate, and loan term in years. The formula includes principal and interest (P&I), which is calculated using: M = P[r(1+r)^n]/[(1+r)^n-1], where M is monthly payment, P is principal, r is monthly interest rate, and n is number of payments. Additional costs like property taxes, insurance, and HOA fees are added to get the total monthly payment.

Question 2

What is included in a mortgage payment?

Accepted Answer

A typical mortgage payment includes four main components (PITI): Principal (the loan amount borrowed), Interest (cost of borrowing), property Taxes (annual property taxes divided by 12), and Insurance (homeowners insurance). Some loans also include PMI (private mortgage insurance) if down payment is less than 20%, and HOA fees if applicable.

Question 3

How much house can I afford?

Accepted Answer

A general rule is that your monthly housing costs should not exceed 28% of your gross monthly income. Your total debt payments (including mortgage, car loans, credit cards) should not exceed 36% of gross income. Use the mortgage calculator to experiment with different home prices, down payments, and interest rates to find your comfortable payment range.

Question 4

What is PMI and when is it required?

Accepted Answer

PMI (Private Mortgage Insurance) is insurance that protects the lender if you default on the loan. It is typically required when your down payment is less than 20% of the home price. PMI usually costs 0.5% to 1.5% of the loan amount annually, divided into monthly payments. Once you reach 20% equity, you can request to have PMI removed.

Question 5

Should I choose a 15-year or 30-year mortgage?

Accepted Answer

A 15-year mortgage has higher monthly payments but lower total interest costs and builds equity faster. A 30-year mortgage has lower monthly payments, making it more affordable, but you pay significantly more interest over time. Choose based on your financial situation: 15-year if you can afford higher payments and want to own your home sooner; 30-year if you need lower payments or want to invest the difference.

Question 6

How does interest rate affect my mortgage?

Accepted Answer

Interest rate significantly impacts your monthly payment and total cost. Even a 0.5% difference in rate can save or cost tens of thousands of dollars over the loan term. For example, on a $300,000 loan, a 6.0% rate versus 6.5% over 30 years means a difference of about $57/month and $20,520 in total interest.

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Frequently Asked Questions

How is a monthly mortgage payment calculated?

What is PMI and when is it required?

Should I choose a 15-year or 30-year mortgage?

How much house can I afford?

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