# Mortgage Calculator

## Can you afford the monthly payments on your next home loan?

The free mortgage payment calculator below can help you determine if you can afford the next new home you want to buy. It allows you to calculate monthly mortgage payments on a traditional fixed-rate mortgage to ensure the payments work for your budget. This helps narrow your search as you look for a new home.

## Step 1: Gather up some basic information

To use the calculator you will need to know the following:
1. Purchase price – the listing price on the home
2. Down payment amount – how much money do you have set aside for a down payment? Remember to separate out closing costs, which average 2-5% of a home’s purchase price
3. Term – fixed rate mortgages are generally 10, 15 or 30 years
4. Interest rate – check current rates online; keep in mind the lower your credit score, the higher your rate will be above current rates you find
5. Yearly property taxes – you can check with the city or county where you intend to buy or use a property tax estimator online
6. Yearly property insurance – call your agent for estimates in different areas

## Step 2: Calculate monthly mortgage payments

### Mortgage Calculator

\$
%
%
\$
\$

Your monthly mortgage payments would be .

## Understanding Other Lending Options When You Buy a New Home

A traditional fixed-rate mortgage is usually the easiest home loan to manage. It’s a fixed installment loan, so your monthly mortgage payments will generally stay the same over the life of the loan (minus yearly adjustments in insurance rates and property taxes). Particularly if you’re a first-time homebuyer, a fixed-rate mortgage is usually the best and safest investment option. However, there are other options available that you can use if they better fit your needs.

• What is it? With this type of mortgage, the interest rate you qualify for when you apply for the loan adjusts periodically over the life of the mortgage (which is usually 30 years).
• How do interest rates apply? The interest rates you receive each time the mortgage adjusts are based on current market rates at the time and your credit score. So when rates are low, your rate may decrease. However, if market rates rise then your mortgage rate would increase.
• How often do rates change? Most ARMs adjust every 1, 7 or 10 years
• Upside: You can usually qualify for an ARM even if your credit score makes you ineligible for a fixed-rate mortgage
• Downside: Market fluctuations in interest rates can impact your payments significantly

## Hybrid mortgages

• What is it? Also known as a Hybrid ARM, this effectively splits the difference between a fixed-rate and an ARM because the interest rate stays fixed for a set period of time, then start to adjust on a schedule
• How do interest rates apply? You initially qualify for lower rate that applies to the loan as a fixed interest rate for a set period of time – usually 3, 5, 7 or 10 years. Then the rate adjusts and can be much higher. Adjustments then occur regularly for the remaining life of the loan
• How often do rates change? The numbers listed at the beginning of the ARM’s name tell you how often the rate will change. So if you have a 5/1 hybrid ARM the interest rate will stay constant for 5 years, then adjust every year after that. If you can find a rarer 5/5 hybrid ARM, it means the rate adjusts every 5 years
• Upside: If you plan to be a short-term owner who moves within the time you have before your mortgage rate starts to adjust, then you can take advantage of the lower interest rate without the added risk of an ARM where the rate adjusts
• Downside: If you plan on moving and selling, but it doesn’t work out you can get stuck with high monthly payments that may be tough to meet on your budget

## Two-step mortgages

• What is it? This is a different spin of a Hybrid ARM because after the first adjustment period, you may be able to choose to have a fixed rate for the remaining life of the loan.
• How do interest rates apply? Again, you may be able to qualify for a lower interest rate at the start of the mortgage than what you would get on a traditional loan; then interest rates either adjust based on the structure set with the lender or become a fixed rate than remains over the life of the loan
• How often do rates change? If you choose to have a fixed rate after the initial adjustment, then the rate only adjusts once; typically the initial rate applies for 5 or 7 years
• Upside: This offers less risk of payment fluctuations following the initial fixed-rate period than a Hybrid ARM where the rate usually adjusts every year after that
• Downside: If rates are high on your adjustment year, you may get stuck with a higher rate than you really want. In this case, you may need to refinance.

## Balloon mortgages

• What is it? This is a short-term home loan typically used by property investors. The initial monthly payments are low. In some cases you pay interest only for a period of time, generally about 10 years. Then after that period, the balance is due all at once in one large installment.
• How do interest rates apply? Interest rates on balloon mortgages are usually fixed like they are with traditional fixed-rate mortgages. It’s the payments that adjust.
• How are you supposed to pay off the entire balance at once? Refinancing or selling. When the balance comes due, you refinance and pay off the balance if you haven’t sold the home already.