Why Use a Mortgage Payment Calculator?

When considering purchasing a home, it’s natural to focus on the purchase price or mortgage amount, but it’s important to remember that your regular mortgage payments will have the greatest impact on your budget. These payments will be a recurring monthly expense that you’ll need to account for when planning your finances.

What is a Mortgage Payment?

Our mortgage payment is a crucial monthly expense, consisting of principal and interest, that is made to repay your mortgage loan. It may also include additional expenses such as mortgage default insurance (required when making a down payment less than 20% of the home’s value), property taxes and other miscellaneous fees. As the loan progresses, a larger portion of your payment will be applied towards reducing the principal balance, with a decreasing portion going towards paying interest.

How Important is your Mortgage Payment?

Your mortgage payment is an important financial obligation, as it is likely one of the largest expenses you will have in your budget. A mortgage is a long-term loan that is used to purchase a home, and failure to make timely payments can have serious consequences. Your credit score can be negatively impacted and you could also risk foreclosure if you’re unable to keep up with payments. In addition to being an important expense, a mortgage payment also represents a significant investment, as it is building equity in your home. It is crucial that you carefully consider your budget and ability to make consistent mortgage payments before taking out a mortgage. Once you’ve taken on a mortgage, it’s important to stay on top of payments and manage your mortgage responsibly to avoid any potential issues.

What are the Factors that Can Affect your Mortgage Payment?

There are several factors that can impact the size of your mortgage payments. These include:

  • The purchase price of the home, which determines the total loan amount needed
  • The down payment amount, which affects the loan-to-value ratio and in turn can impact the interest rate
  • The interest rate, which affects the amount of interest charged on the loan over time
  • The amortization period, which is the length of time it takes to pay off the entire mortgage, and can impact the monthly mortgage payments by affecting the loan term.
  • Mortgage default insurance which is needed when your down payment is less than 20% of the cost of your home. Keep in mind that the more you pay upfront, the smaller your required mortgage amount, and the lower your monthly payments will be. Opting for a lower interest rate and a shorter amortization period can also help keep your payments lower over time, although they may require a larger monthly payment, in the long run, you will pay less in interest.

How to Lower your Mortgage Payments

Ways to lower your monthly mortgage payments include reducing the purchase price, increasing the down payment amount, extending the loan term, or obtaining a lower interest rate. Utilizing a mortgage calculator can help you calculate the potential payments for these different scenarios. Note, if your down payment is under 20%, your loan term will be limited to 25 years maximum. To find a lower interest rate, consulting with a mortgage broker is advisable.

How to Pay Off your Mortgage Faster

Paying off your mortgage faster can result in substantial savings on interest, but it comes at the cost of higher monthly payments over a shorter period of time. Before making any changes, it’s crucial to understand any prepayment penalties that may be included in your mortgage. Some strategies for accelerating mortgage repayment include:

  • Making more frequent payments: An example of this is switching from monthly payments to bi-weekly payments.
  • Increasing the amount of each mortgage payment: This will shorten the time it takes to pay off the mortgage.
  • Making a large, one-time payment, such as from a tax refund or bonus, towards the mortgage balance. Be sure that you can afford it before doing so.

Best Strategies to Decrease your Mortgage Payment

There are several strategies you can use to decrease your monthly mortgage payments:

  1. Refinance your mortgage: If interest rates have dropped since you took out your mortgage, refinancing at a lower rate can significantly decrease your monthly payments.
  2. Extend your loan term: If you’re facing a financial hardship, extending the length of your loan term can decrease your monthly payments by spreading the cost of the loan over a longer period of time.
  3. Make a larger down payment: A larger down payment can decrease your monthly payments by reducing the amount you need to borrow.
  4. Work with your mortgage broker/lender: If you’re having trouble making payments, your lender may be willing to work with you to find a solution that can help reduce your monthly payments.

It’s important to consider your budget and long-term financial goals when choosing a strategy to decrease your mortgage payments. Also, some of these options may not be available or may have some additional fees associated with them. It’s advisable to get professional advice from a financial advisor before making a final decision.

General Thoughts on Mortgage Payments

One additional thought about mortgage payments is the importance of budgeting for them. It’s important to make sure that your mortgage payment fits comfortably within your overall budget, and that you have enough money left over for other expenses and savings. One way to do this is to use a mortgage affordability calculator, which will help you determine how much you can afford to spend on a mortgage payment based on your income and other expenses.

Another aspect to consider is to have an emergency fund set aside, this can help you if you face unexpected expenses such as job loss, health issues or unexpected repairs on the house, that could make it hard to keep up with the mortgage payments.

It’s also important to review your mortgage periodically to ensure that it still meets your needs. You may want to consider refinancing your mortgage if interest rates have dropped, or if you want to change the terms of your loan.

Lastly, it’s a good idea to monitor your credit score and work on improving it, this can help you in the long run when it comes to qualify for a mortgage, or if you decide to refinance, a good credit score can get you a better interest rate.