The COVID-19 virus and the resulting pandemic have the world at large and her financial systems all scrambling for footing. Here in Australia, it’s no different. Economic and social debates flame on over the question, “To re-open or to not re-open?” The weight of the decision to re-open or not, here in Australia has become a matter of morality. Hanging there high in the balance of that debate, your financial security. Something all Aussies would like to stabilize straight away. To your aid, here’s how to figure out your monthly mortgage payment.
Getting Ahead on Your Home Loan
According to Moneysmart.gov.au to save a 20% house deposit. A larger deposit means a more modest loan, and you’ll avoid lender’s mortgage insurance (LMI). Compare loan options from at least two lenders. Focus on your needs, and look for the lowest interest rate. A home loan is a serious debt responsibility, and even a small difference in interest adds up over time. Be aware of all the costs involved in buying a house, and be practical with the amount you borrow. Interest rates or your conditions could change, so give yourself a safety net.
Once you’ve obtained your loan and moved into your home, make bi-weekly repayments. You’ll pay off your mortgage faster by making an extra month’s repayment each year. Communicate any difficulties you’re experiencing hardship as a result of Covid-19. If you’ve received a default notice, get free legal advice straight away.
The Math of It
1. What is your mortgage principal?
The initial loan amount is the mortgage principal. For example, someone with $20,000 cash can make a 20% down payment on a $100,000 home but will need to borrow $80,000 from the bank to complete the purchase. Each monthly mortgage payment will reduce the principal, but interest will be added.
2. But what’s my monthly interest rate?
The interest rate is the fee a bank charges you to borrow money. It’s typical that a buyer with a high credit score will secure a lower interest rate—the risk of loaning that person money is more economical than it would be for someone with bad credit. If you want to do the monthly mortgage payment calculation by hand, you’ll need the monthly interest rate—divide the annual interest rate by 12 (months in a year). For example, if the annual interest rate is 3%, the monthly interest rate would be 0.25% (0.03/12 = 0.0025).
3. How many payments will I make?
The most common term for a fixed-rate mortgage is 30 years or 15 years. That’s 360 or 180 monthly mortgage repayments per each mortgage duration. You arrive at those numbers by multiplying the number of years by the number of months in a year.
4. Consider the cost of property taxes.
A monthly mortgage payment will in most cases include property taxes, which are collected by the lender and then put into a specific account, which you probably know is called an escrow account. At the end of the year, the lender pays the taxes to the government on your behalf out of escrow.
How much you owe in property taxes will depend on local tax rates and the value of your home. The lender estimates the amount that you, the homeowner, will need to pay. In the end, their estimation could be more or less than the actual amount owed. And come tax season the calculation could result in a bill or a refund for you. We shall hope for the latter. You can typically find your property tax rate on your local government’s website.
5. Seek competitive rates on homeowners’ insurance.
Commonly, every homeowner who takes out a mortgage is required to pay homeowners insurance. The insurance policies with a high deductible will generally have a lower monthly premium.
6. Calculating your monthly house note by hand.
You can calculate your monthly house note or mortgage payment, nix taxes and insurance, with the following equation:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
P = principal loan amount
i = monthly interest rate
n = number of months required to repay the loan
Once you calculate M (monthly mortgage payment), you can add in the monthly property tax and homeowners insurance premium, if you have them. These are set costs and not determined by how much you borrow from the bank so that they can be easily figured into the monthly cost.
7. Double-check your math with an online mortgage calculator.
If math isn’t your cup of tea, online mortgage calculators can figure the cost of your mortgage, including insurance costs and taxes. These can generate an accurate representation of the monthly payment you will make. An online calculator can also help estimate taxes and insurance costs.