Calculating Your Monthly Mortgage Payment and bringing your Balance Do

Calculating Your Monthly Mortgage Payment and bringing your Balance Down…

Paying off the mortgage early is in. Refinancing to take money out of your home is out. Having lived through the foreclosure crisis, more people want the security and the psychological benefit of owning their home free and clear.

Wondering how much you’re going to shell out for your mortgage? Here’s how to calculate your monthly mortgage payments on a fixed-rate loan:

The variables are as follows:

•M = monthly mortgage payment

•P = the principal, or the initial amount you borrowed.

•i = your monthly interest rate. Your lender likely lists interest rates as an annual figure, so you’ll have to divide by 12, for each month of the year. So, if your rate is 5%, then the monthly rate will look like this: 0.05/12 = 0.004167.

•n = the number of payments, or the payment period in months. If you take out a 30-year fixed rate mortgage, this means: n = 30 years x 12 months per year = 360 payments.

How can I lower my monthly payment?

You can lower your monthly payment in a few ways:

• Increase the term of the loan. As we showed above, the longer you take to pay off the loan, the smaller each monthly payment will be. The downside is that you’ll pay more interest.

• Decrease the size of the loan. Of course, if you have a smaller loan balance to begin with, you’ll need to pay less each month to pay it off.

• Get to the point where you can cancel your mortgage insurance. Some lenders require you to buy mortgage insurance if you put less than 20% down.

• Look for a lower interest rate. You can think about refinancing (if you already have a loan) or shop around for other loan offers to make sure you’re getting the lowest interest rate possible.

Can my monthly payment go up?

Your monthly payment can rise, in a few cases:

• You have an adjustable-rate mortgage in which your payment stays the same for an initial term (such as 5, 7 or 10 years) and then readjusts every year.

• If you have an escrow account to pay for property taxes or homeowner’s insurance, those taxes or insurance premiums may have risen. Your monthly payment includes the amount paid into escrow, so the taxes and premiums affect the amount you pay each month.

• Just pay more. If you want to see magic, start playing with mortgage calculators and see how adding a little payment to your principal here and there can shorten the length of your loan.
• Refinance to a shorter-term loan. You can refinance into a mortgage for 10, 15 or 20 years, but 15-year mortgages are the most common.

It's time to go back to the basics of homeownership: buy less house than you can afford and pay off your home as fast as possible. A debt-free home is really a nice home to live in and it's absolutely worth striving for!