If you’re in the market for a new home one of the first things you should do is figure out exactly how much you can afford to pay toward your monthly mortgage payment. Using an online mortgage calculator is a great way to determine how much your monthly payment would be given specific circumstances.
For example, you can enter an approximate purchasing price, the amount of money you’d need to borrow, and estimated property taxes and insurance. The calculator will then show you how much your payment will be at current interest rates. Then you can play around with the numbers and see what happens if interest rates go up by half a point or if you decide to borrow an extra $10,000.
While mortgage calculators offer an effective way to estimate your monthly payments before you sign on the dotted line, they are only as good as the information you put into them. You can input 3.5% for the interest rate but if you have a lousy credit history and a low credit score you probably won’t qualify for such a low rate. If your credit score will only justify an interest rate of 4.5% then obviously your monthly payment will go up as well.
Another thing to consider is property tax. Depending on what part of the country you live in, you could end up paying thousands of dollars every year toward property taxes. For example, in New Jersey even a moderately sized home in an average neighborhood can run you $6000 to $8000 in property taxes. That means you have to add an additional $500 to $700 to your mortgage payment each month. If you forget about property taxes when using the mortgage calculator, you could be in for quite a surprise as your affordable mortgage payment suddenly balloons well beyond your ability to pay.
Another thing many people forget is homeowner’s insurance. Property insurance will vary wildly depending on where you live, the size of your house, and whether you have certain features like an alarm system or a backyard pool. Your best bet is to estimate high and then if your insurance bill is lower than you’ll have extra wiggle room each month.
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I *wish* my property taxes were within that range — and I only have a modest home on a 50×100 lot. Damn Northern NJ towns. Good tips!
Nicole @ The Penny Frugalista´s last [type] ..Technology Is Making You Broke
Your mortgage broken can also help you come up with more customized mortgage calculations as well.