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How Do Mortgage Calculators Actually Work?

How Do Mortgage Calculators Actually Work?

Couple who used a mortgage calculator and smiling with their mortgage broker

Let’s Debunk The Confusion Around Mortgage Calculators

Mortgage calculators are a wonderful tool to use whether you are looking to buy your first home or looking to upgrade or down-size your home. These tools are great starting point to see what you can afford and to get an idea of how much your mortgage would cost depending on the type of home you want. As of September 2022, the average home in Barrie is $738,450. So how do mortgage calculators actually work? And, how can they help you get closer to achieving your goal of buying your first home in Barrie?

A mortgage calculator will estimate the monthly payment you would pay along with other financial costs associated with your mortgage if you bought a home at the price you enter into the calculator. There are options to include extra payments or annual percentage increases of common mortgage-related expenses to make sure the estimate it gives you is pretty accurate.

The first mortgage calculator you will want to look at (which can be found HERE) will determine how much you can afford so you can fine-tune your results to decide what price range you should be looking in to buy. You enter your annual income, and all the debt payments you pay per month (car insurance, credit card debt, phone bill, etc.) Then you put in the mortgage rate and amortization period you are hoping to obtain. The amortization period is the term of your mortgage whether it’s 25 years or 5 years. Then you put in the average heating costs, condo fees, or property tax that add estimate will have to pay monthly. 

Let’s use this as an example:

what can I afford mortgage calculator

maximum monthly mortgage payment calculator

That means you could afford a $391,532 home, and your maximum monthly payment is $1,908. 

The second mortgage calculator to look at, (which can be found HERE) helps you determine how much your mortgage payments would be, depending on the home price. With this calendar, you put in the total mortgage amount, your amortization period, the interest rate, and how often you make mortgage payments (monthly, or biweekly) and it will tell you what you can expect your regular mortgage payment to be. 

Let’s use the average price in Barrie as an example:

what would my mortgage payment be

mortgage payment calculation

If your home costs $738,450, your mortgage payment would be $1,655.77 biweekly. 

This scenario may sound a little scary to you, but that is why you work with a mortgage broker to get you the lowest mortgage rate possible, to review your finances to make sure you can afford the home you are buying, and to reduce costs wherever possible. An experienced mortgage broker really is more of a financial advisor throughout your buying process.

What options can help to reduce your monthly rate on your home?

#1. Think about possibly buying a home with another person. Combining your annual income will make a huge difference in the amount that you can afford. Whether that’s your romantic partner, a family member, or a very close friend, make sure you 100% trust that person because it is a big financial decision to make and it’s not an easy contract to get out of if you don’t end up getting along. 

#2. Make sure to reduce your debt on other purchases before jumping in to buy a new home. Pay off, or sell that boat you bought 5 years ago that you aren’t using, or think about reducing your phone bill per month. Every little bit counts to make your life easier when paying off your mortgage. Having a solid credit score will help you get pre-approved for a lower mortgage rate from your lender. On average, it is best to have a credit score of 750 or higher.

#3. Ensure you have a reliable employment history to get a lower mortgage rate from your lender. If you’re self-employed, follow these tips. 

#4. Depending on the value of the property you are buying, you will need to come up with anywhere between a 5% – 20% down payment. Since mortgages are price adjusted based on risk factors, a loan with 5% down is considered higher risk than one with 20% down and will carry a higher interest rate. The higher your down payment, the more likely you are to once again qualify for a lower mortgage rate.

#5. Work with a mortgage broker, like myself, Darren Robinson, to ensure you get the lowest rate possible on your mortgage. Whether you’re looking for your first home, your second home, or your first cottage, you’ll benefit greatly from working with an accredited mortgage broker know knows the current rules, regulations, processes, and procedures like the back of their hand.

With so many different mortgage types, rates, and down payment options, it is always a good idea to get expert financial advice. You’ll have a much better understanding of what you can afford, how far your current assets will stretch, and how much you need to live comfortably in your new home.

Remember: The mortgage itself is only one aspect of buying a home. If you’re switching from an existing mortgage, there are many other considerations to think about. That’s where a professional mortgage broker will prove extremely useful… I can save you both time and money! Call me today so we can work through this together. Call 705-315-0516 or click this link to get started today!

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