A mortgage is the best way to refinance your home. Before you take a mortgage, you must know whether you can service it.

 

Why would you want to know the size of your loan?

It is simple. You earn a fixed amount every month and you have fixed monthly living, food, and other expenses. If you take a mortgage, you have to make a monthly repayment from your monthly income. Therefore, it is imperative to calculate your monthly outgo towards the mortgage. This is precisely why you must know how big a loan you can afford.

How to find out the size of your mortgage

Find a simple affordable mortgage calculator available at most finance websites that you can use to determine the size of your mortgage. You must enter the details of the annual interest rate, the tenure of the loan, the yearly real estate taxes, and annual homeowner’s insurance. Also, enter your gross annual income and your monthly debt outgo. Based on the information you provide, the mortgage calculator will quickly calculate the maximum monthly mortgage payment you can afford and the maximum loan amount that you can take.

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• First, compute your net monthly income after deducting taxes, social security, and retirement contributions. Let us say it is $5000.
• Next, add up all your debt including car loan, student loan, and credit card loan, not including rent or mortgage payments. Assume it is $1000. This amount must not exceed 25% of your net monthly income. Before proceeding, you must take steps to reduce debt below 25% of your net monthly income.
• Take stock of all your expenditure over the past year including holidays, travel costs, food and entertainment, gifts, and tally them with your cash expenses, credit card spending and checks issued. Add all these expenses and divide by 12 to get your monthly living expenses. Let this amount be $1500.
• Add your monthly expenses and debt to get your total monthly expenditure, $2500.Deduct this from your monthly income and $2500 is the maximum monthly mortgage payment you can afford.
• You must deduct 30% of this value for taxes and home insurance. Therefore, $ 1750 is the maximum monthly mortgage payment that you can afford.
• Other factors that determine the affordability of a mortgage include the tenure of the mortgage, the interest rates, and whether the mortgage is fixed or variable interest.

Advantage of using a mortgage loan calculator to find the size of your mortgage

As you have seen, you need the calculator to make the detailed computations. Moreover using a calculator can give you results quickly and you can compare mortgage offers from several lenders. These mortgage calculators help you control costs so that principal, interest, taxes, and homeowner’s insurance do not exceed more than 28% of your gross monthly income. It also ensures that your debt payments do not cross 36% of your gross income. From the above discussion, it is evident that a mortgage calculator is a useful tool to decide the affordability of a mortgage. It enables you to take quick and accurate decisions with help from your lenders.

The fallout of not using a mortgage calculator

You may make errors in computations, throwing off your entire budget and financial planning out of gear. You may take a bigger loan than you can afford or you may underestimate yourself and settle for a smaller house. You can harm your credit rating by defaulting on the monthly mortgage payments, adversely affecting chances of getting credit in the future. So, be smart and use a mortgage calculator instead.