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Published: October 26, 2006
When most people agree to a home mortgage, they listen to their creditor with wide, incredulous eyes. They nod attentively, sign indiscernible paperwork and go home bewilderedly wondering what layer of hell they just assigned their soul.
Short of the creditors who handle these cases daily, the majority of middle America does not understand exactly what a mortgage is, let alone how to calculate one to assure they are receiving the best deal.
Simply stated, a mortgage is a method of using property to secure the payment of a debt.
The borrower, who commonly will take out a mortgage to secure real estate payments, gives the lender a legal hold over property as security for repaying the loan.
Still confused? There are several mortgage calculators to help simplify this process.
Mortgage calculators can easily be found online. A variety of mortgage types can roughly be determined by these online mortgage calculators. Though the mortgage varieties are vast, there are several straightforward steps one can follow in order to simplify this process and help make it more easily discernable.
Most mortgage calculators begin with this simple advice: principal plus interest equals the number of years it will take a borrower to pay off his or her loan. The principal refers to the capital, while interest is defined as a surcharge on the debt of borrowed money.
The annual percentage rate incorporates the interest rate plus any fees for services rendered by the lender. This modified rate reflects the total cost of a mortgage loan.
Free online mortgage calculators, such as the one found on Interest.com, take into consideration the total mortgage amount, the mortgage term and the interest rate. Additional factors affecting the mortgage calculations include extra payments and the pay-off date.
Once the monthly interest and principal payment are determined, it is important to determine how much the annual property taxes are, and then divide this number by the number of mortgage payments. For example, if it is a monthly mortgage, divide by 12. If it is a biweekly mortgage, divide by 26.
Next, determine how much the homeowner's insurance will annually cost. Divide this number by 12 or 26, depending on the type of mortgage payment plan.
Add the PMI to this newly factored number. PMI refers to private mortgage insurance. This type of insurance protects the borrower against potential loan defaults. It usually is required for mortgage loans where the down payment is less than 20 percent of the sales price. When refinancing a loan, however, it is required when the financed amount is greater than 80 percent of the appraised value.
Finally, add each dividend to determine the actual mortgage payment. This includes the monthly interest, monthly principal payment, insurance, taxes and PMI, if applicable.
Once borrowers are able to firmly grasp their payment responsibilities, as well as their lender's obligations, they can begin shopping around for the best rate using the easy-to-follow aforementioned mortgage calculator.
Sources:
Interest.com. 2006. 25 Oct. 2006.
How to Calculate Mortgage Payments for a Home. eHow.com. 2005. 25 Oct. 2006. http://www.ehow.com/how_6340_calculate-mortgage-pa yments.html
Wikipedia.com. 2006. 25 Oct. 2006.
Short of the creditors who handle these cases daily, the majority of middle America does not understand exactly what a mortgage is, let alone how to calculate one to assure they are receiving the best deal.
Simply stated, a mortgage is a method of using property to secure the payment of a debt.
Related Articles
Still confused? There are several mortgage calculators to help simplify this process.
Mortgage calculators can easily be found online. A variety of mortgage types can roughly be determined by these online mortgage calculators. Though the mortgage varieties are vast, there are several straightforward steps one can follow in order to simplify this process and help make it more easily discernable.
Most mortgage calculators begin with this simple advice: principal plus interest equals the number of years it will take a borrower to pay off his or her loan. The principal refers to the capital, while interest is defined as a surcharge on the debt of borrowed money.
The annual percentage rate incorporates the interest rate plus any fees for services rendered by the lender. This modified rate reflects the total cost of a mortgage loan.
Free online mortgage calculators, such as the one found on Interest.com, take into consideration the total mortgage amount, the mortgage term and the interest rate. Additional factors affecting the mortgage calculations include extra payments and the pay-off date.
Once the monthly interest and principal payment are determined, it is important to determine how much the annual property taxes are, and then divide this number by the number of mortgage payments. For example, if it is a monthly mortgage, divide by 12. If it is a biweekly mortgage, divide by 26.
Next, determine how much the homeowner's insurance will annually cost. Divide this number by 12 or 26, depending on the type of mortgage payment plan.
Add the PMI to this newly factored number. PMI refers to private mortgage insurance. This type of insurance protects the borrower against potential loan defaults. It usually is required for mortgage loans where the down payment is less than 20 percent of the sales price. When refinancing a loan, however, it is required when the financed amount is greater than 80 percent of the appraised value.
Finally, add each dividend to determine the actual mortgage payment. This includes the monthly interest, monthly principal payment, insurance, taxes and PMI, if applicable.
Once borrowers are able to firmly grasp their payment responsibilities, as well as their lender's obligations, they can begin shopping around for the best rate using the easy-to-follow aforementioned mortgage calculator.
Sources:
Interest.com. 2006. 25 Oct. 2006.
How to Calculate Mortgage Payments for a Home. eHow.com. 2005. 25 Oct. 2006. http://www.ehow.com/how_6340_calculate-mortgage-pa yments.html
Wikipedia.com. 2006. 25 Oct. 2006.
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