How to Use the VA Loan Calculator

If you're unsure where to begin when estimating your monthly VA loan payments, this calculator is a great place to start.

Simply adjust the specific fields to fit your unique homebuying situation, and the calculator will immediately update the payment estimate based on your inputs.

If you're ready for a personalized quote, talk with a Veterans United Home Loans specialist today.

A Look at the Calculator Inputs

Home Value: Home value is the potential purchase price of the home, not including a down payment.

Down Payment: The down payment is an upfront amount paid towards the principal. VA loans do not require a down payment, and most choose $0 down. However, if you decide to put money down, it can reduce the VA funding fee - if required - and your overall monthly payment.

Interest Rate: The interest rate is the cost of borrowing. Interest rates in the calculator include APR, which estimates closing costs and fees, and is the actual cost of borrowing. Interest rates in the calculator are for educational purposes only, and your interest rate may differ.

Loan Term: Loan term is the length you wish to borrow - typically 15 or 30 years.

Credit Score: Interest rates typically vary based on a handful of factors, including credit score. Estimate your credit score for a more accurate VA loan payment.

Loan Type: VA loans provide both purchase and refinance options. Calculations for loan types differ due to the VA funding fee. If you're calculating a cash-out or IRRRL, we have a specific calculator for VA refinancing here.

VA Specifics: VA specifics relate to the VA funding fee. Borrowers with a disability rating of 10% or more, have a Purple Heart or are a surviving spouse are exempt from the VA funding fee. Borrowers who aren't exempt and have used a VA loan before are subject to a slightly higher VA funding fee.

As with any mortgage calculator, these numbers are estimates. To get exact figures, contact Veterans United Home Loans and speak with a home loan specialist.

Take the next step.

Prequalify

Use this 15- vs. 30-year mortgage calculator to get an estimate.

This 15- vs. 30-year mortgage calculator provides customized information based on the information you provide. But, it also makes some assumptions about mortgage insurance and other costs, which can be significant. Use the total cost and monthly payment estimates to help determine which option is best suited for your needs.

Which is better?

Choosing between a 15- and 30-year mortgage depends on your personal goals and your financial situation. Generally, a 15-year mortgage means higher monthly payments. This means you’ll be able to pay the loan off faster and pay less interest over the life of the loan. A 30-year mortgage generally offers lower monthly payments. With this option, the total amount you pay over the life of the loan will usually be higher. This 15- vs. 30-year mortgage calculator can help you determine which option is right for you.

Estimated monthly payment and APR example: A $225,000 loan amount with a 30-year term at an interest rate of 3.875% with a down payment of 20% would result in an estimated principal and interest monthly payment of $1,058.04 over the full term of the loan with an Annual Percentage Rate (APR) of 3.946%.¹

Lender NMLS: 2826

Trade / Service marks are the property of American Financial Resources, Inc. DBA eLEND. For more information, please visit www.nmlsconsumeraccess.org. Some products may not be available in all states. This is not a commitment to lend. All loans subject to credit approval.

*Interest rates and programs are offered exclusively through eLEND. eLEND's Rate Lock Desk is open Monday to Friday between the hours of 10am and 5pm ET, company holidays excluded (the “Lock Desk Hours”). Our rates are subject to change at any time without notice. Interest rates displayed on our website(s) outside of the Lock Desk Hours reflect the rates that were available at the close of the previous Lock Desk Hours. An interest rate is only confirmed with a written rate lock confirmation. An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate. Lending services may not be available in all areas. ¹FICO: 740. Single Family Residence. $300k Value. $240K Loan Amount. Owner Occupied. Purchase for VA Loan Type, all others Refinance.

Basic Overview

There are many different mortgage programs and options to choose from whether you are setting up a new mortgage to purchase a home or to refinance a mortgage on a home that you already own. There are fixed rate mortgages, fixed to adjustable rate mortgages and adjustable rate mortgages to choose from. The most popular and well known mortgages are 15- and 30-year fixed rate mortgages.

Why Use the Mortgage Loan Calculator?

There are so many different mortgage and loan options to choose from, it can sometimes be a little overwhelming. Whether you are setting up a new mortgage to purchase a home or to refinance a mortgage on a home that you already own, there are always a great many aspects to consider.

To name just a few of the more common choices, there are fixed rate mortgages, adjustable rate mortgages, and fixed to adjustable rate mortgages for those who want something in between. Fixed rate mortgages with terms lasting between 15 and 30 years are currently the most common.

Whichever kind of mortgage you end up using, the information you get from the Mortgage Loan Calculator will remain relevant.

How to Use the Mortgage Loan Calculator

We have done our best to make this calculator as simple and user-friendly as possible, but if you aren’t sure where to start, try following these steps:

1. Use the slider to enter your mortgage amount, or alternatively just type it into the box. If you aren’t sure yet how much you will borrow, just enter your best guess.
2. Use the drop-down list or the slider to input your term; this is the number of years you intend to take to repay your loan.
3. Use the slider or the box to input your interest rate. If you don’t know this yet, leave the original figure as this is representative of the current market average.
4. Your monthly payment will now be displayed in the top blue bar and under the interest rate box based on the information provided.
5. If you are coming in well under budget, you can click Prepayments to add an additional amount that you will pay every month, year, or even just one time. This will reduce the total amount repaid as you can see in the graph below the Prepayments section.
6. Click View Report to see a detailed breakdown of your loan including total amount to be repaid over the term, and a payment schedule comparing your regular payments with those augmented by prepayments (where applicable).

How do I qualify for a mortgage?

To qualify for a mortgage or refinance lender, shop around with several lenders. When you find one offering the best rates and terms, make sure you meet its qualifying requirements. These relate to your income, debt, and credit score.

You will need to provide information on your finances, so gather documents such as pay stubs and bank statements. Once you've found the right loan and have your paperwork ready, submit an application. For more information, or if you're ready to go, use our form to help guide you through the process to get a mortgage pre-approval.

Can I get a mortgage with no credit?

Yes. Most lenders look at your credit report and score when determining if you can qualify for a home loan. However, some lenders will work with borrowers who don't have a credit history. They can review other documentation, such as utility statements, showing you have a history of making on-time payments.

You will need to shop around for a lender that does manual underwriting and prepare financial documentation such as bank statements to get approved. Find out more in this guide on how to buy a house with no credit.

How much house can I afford?

The amount you can afford to spend on a house depends on many factors. Your down payment is important. A larger down payment means you generally can afford a home that's more expensive. Your credit score, income, and other debt also affect what you can borrow. However, you may not want to borrow the maximum allowed.

Generally, experts recommend you keep housing costs below 30% of your income. This includes your mortgage, utilities, HOA fees, insurance, taxes, and other costs. Staying below this threshold ensures mortgage payments won't compromise other financial goals. You can also find out other details to consider in our guide to figuring out how much house you can afford.

What does a mortgage payment include?

Your monthly mortgage payment includes:

• Principal: This is the amount you pay toward the loan balance each month so your loan is paid on time.
• Interest: This is the cost you pay for borrowing. It's determined by how much you borrowed and your interest rate.
• Taxes: Most lenders collect a payment toward your property taxes each month. This money is put into an escrow account. That's a special account earmarked for you and held by a trusted party. The lender pays the property tax bill out of the escrow account.
• Insurance: Lenders also collect a monthly payment toward homeowners insurance. This is also put into escrow. Lenders then pay your insurance bill. The purpose is to protect the collateral (the house) by making sure the bills are paid.

What mortgage type should I choose?

The type of mortgage you should choose depends on many factors, including your credit history, your down payment amount, the type of house you're buying, and your goals for your loan. For example, you may wish to choose a:

• Conventional mortgage (one not guaranteed by the government) if you want to avoid up-front fees.
• A government guaranteed mortgage (such as an FHA, USDA, or VA loan) if you have imperfect credit or a small down payment.
• A 30-year fixed rate loan if you want predictable payments and don't mind paying more interest over time in exchange for a smaller monthly payment.
• A 15-year fixed rate loan if you want predictable payments and want to pay the least amount of interest over time even if that means a higher monthly mortgage payment.

These are just a few examples of different home loans. Make sure to research all the available mortgage types before you decide.

What is the difference between pre-qualified and pre-approved?

Getting pre-qualified for a mortgage involves submitting a small amount of financial information to find out what your mortgage loan terms would likely be. It's a quick process that shouldn't affect your credit score.

Getting pre-approved involves submitting a large amount of financial information. Lenders commit to providing a loan if your financial situation doesn't change and the home you want to purchase meets their criteria. Pre-approval is usually required by home sellers when you make an offer, and it's a much more involved process.

Learn more about the difference between mortgage pre-qualification vs. pre-approval before shopping for a home.

What can I expect in the home-buying process?

To begin the process of buying a home, you'll need to set a budget and ensure you're financially prepared to qualify for a home loan and pay a mortgage. You should prepare the financial documents that mortgage lenders will want to review. Get quotes from several lenders and pursue mortgage pre-approval from the one offering the best terms.

You may want to hire a real estate agent to help you shop for properties. When you find a home that fits your budget and criteria, make an offer. Be sure to include contingencies or conditions that must be met, such as a satisfactory inspection. Complete the formal loan approval process for the mortgage what time does pickup close at walmart that best fits your needs and close on your transaction.

This home-buyer checklist provides more insight into each of these steps, so check it out before you start shopping for a property.

How much should you save 30 year fixed mortgage rates payment calculator a down payment?

Ideally, you will make a down payment that is equal to 20% of the value of the property. So if you're buying a $200,000 home, save $40,000.

However, many people don't save this much for a down payment. You could potentially qualify for a conventional loan (not backed by the government) with as little as 3% down. Some government-backed loans don't require a down payment at all. But if you don't make a down payment or you make a small one, you can expect to pay mortgage insurance or other upfront fees.

Whether you plan to save 20% or not, be sure to look into how to save for a down payment.

What documents do you need to apply for a mortgage?

To apply for a mortgage, you will need:

• Proof of income, such as tax returns, pay stubs, W-2s, or 1099 tax forms
• Proof of assets, such as bank statements and investment account statements
• A gift letter if someone is providing you with gift money for a down payment
• A history of mortgage or rent payments, such as information from your landlord
• Identification, which could include a Social Security card and government-issued ID

Lenders may also request additional information, so be sure to read up on what documents are required for home loans.

What expenses of homeownership do I need to prepare for?

Expenses of homeownership to prepare for include:

• Your mortgage payment, which is paid to your lender
• Property taxes, which are often added to your mortgage payment (your lender puts the money into a special escrow account and then pays your local government the taxes for you)
• Homeowners insurance, which is also often added to your mortgage payment and paid by your lender. Check out our guide to determine how much homeowners insurance you may need
• Mortgage insurance, which is insurance that protects the lender from potential losses if you make a down payment below 20% of your home's value
• Utilities, including electricity, gas, water, cable, and internet
• HOA dues if you live in a neighborhood or building with a homeowner's association
• Home maintenance and repairs so you aren't caught off guard by surprise expenses

You can learn more about these costs in this guide to homeownership expenses.

What's the difference between a 15- and a 30-year mortgage?

A 15-year mortgage is a home loan that's paid off in half the time of a 30-year loan. With a 15-year loan, you make payments for just 15 years as opposed to 30 years.

The monthly amount you owe is higher on a 15-year loan than a 30-year loan because you make fewer payments. The interest rate is usually lower on a 15-year loan, though. And total interest costs are lower because you pay interest for less time.

Carefully consider the pros and cons of a 15- vs. 30-year mortgage when you decide which is right for you. Additionally, you can explore 20- vs. 30-year mortgages as an option.

What tips would you give first-time home buyers?

Some of the best tips for first-time home buyers include:

• Saving early for a down payment
• Taking steps to improve your credit score
• Setting a budget before shopping for a home
• Shopping around for the most favorable mortgage interest rate and loan terms
• Getting pre-approved before making an offer on a home
• Hiring a real estate agent with solid credentials who you feel comfortable working with
• Researching properties carefully, considering factors such as zoning laws and school districts
• Making an offer that protects your interest, including contingencies, such as an inspection to check for major issuesis
• Saving up money for closing costs

For more information, look at our first-time home-buyer tips.

Why does my debt-to-income ratio matter when applying for a mortgage?

Lenders consider your debt-to-income ratio when you apply for a mortgage because they want to make sure you can afford mortgage payments. They look at your:

• Front-end ratio, which compares your monthly mortgage payments to your income
• Back-end ratio, which compares mortgage payments and other debts to your income

If either ratio is too high, you won't be approved for your loan. For more information about lender requirements, read up on debt-to-income ratio and why it matters.

How does my credit score affect mortgage rates?

A higher credit score can result in a lower mortgage rate. That's because lenders will view you as a low-risk borrower. A lower mortgage rate means lower monthly payments and less total interest paid over time.

A credit score on the low end can make it difficult to get approved for a loan. And lenders that do agree to provide a mortgage will charge a higher rate. That's because your past credit problems suggest there's a greater chance you'll default on your loan.

Find out more about this impact by looking into how credit scores affect mortgage rates.

Use this free tool to figure your monthly payments for a given loan amount. As a basic calculator it quickly figures the principal & interest payments on a fixed-rate loan. If you would like to calculate all-in payments with other factors like PMI, homeowners insurance, property taxes, points & HOA fees please use our advanced calculator.

Want to check out the best rates currently available? Current mortgage rates are displayed below.

Current 30-Year Mortgage Rates on a $260,000 30-Year Home Loan

The following table highlights current local mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table. The "Product" selection menu lets you compare different loan terms like 15 or 30 year fixed rate options & other lending options like 3/1, 5/1 & 7/1 ARMs or even IO ARMs.

Amortization Schedule for a 4.20% APR 30-Year Fixed-rate Mortgage

The Basics of Homebuying & How to Boost Mortgage Savings

Buying a home requires ample financial management and a level of stability. It’s one of the costliest possessions people purchase in a lifetime. Because of the large expense, it’s common practice to take out a loan to afford a house. Thus, a mortgage is 30 year fixed mortgage rates payment calculator of the most important financial obligations you must fulfill, which usually takes decades to pay down.

Since it’s a major purchase, it’s only right to learn more about the homebuying process. First, you must qualify for a mortgage. This is when lenders assess your credit background, income, and overall financial standing. If you are a creditworthy borrower, you are likely to obtain favorable rates and terms. This helps you increase your mortgage savings.

When it comes to choosing the right loan, you must understand different types of payment structures that will suit your budget. Finally, it’s also important to know how your loan’s principal, interest rate, and payment term impacts the cost of your mortgage payment. To find out more, read our guide below.

Factors That Impact Mortgage Qualification

As you’ve likely heard, you must have a good credit profile to be eligible for a mortgage. Before securing a home loan, you must go through mortgage qualification screening. This involves the pre-qualification and pre-approval process. These steps allow lenders to evaluate if you have enough income to afford a home, and whether your financial background satisfies minimum requirements.

Pre-qualification is basically an initial evaluation of your creditworthiness. It provides a rough estimate of how much a lender might loan you based on self-reported financial details. This is a great way to gauge if you meet basic standards to afford a house. Pre-approval, on the other hand, is the formal assessment of your creditworthiness. Lenders verify your credit and income details by confirming with your credit bureau and employer. Receiving pre-approval is a more serious indicator that you’re ready to purchase a home.

Be sure to gather the following documents for your 30 year fixed mortgage rates payment calculator application:

• At least 2 years of federal tax returns
• At least 30 days of pay stubs
• W-2 statement or 1099 from employers
• Quarterly statements of savings & checking accounts
• Documents of bonuses, alimony, social security, other income

Getting Pre-Approval Is Your Best Bet

When you obtain a pre-approval letter, it means a lender has thoroughly checked your credit history and verified your income. It’s a conditional guarantee to grant you a mortgage with a specific loan amount. This gives you the green light to shop around for a home, usually within a period of 60 to 90 days. Most home sellers also ask for a copy of your pre-approval letter before closing a real estate deal. Thus, getting pre-approval is your best move to secure a mortgage.

 

But before anything else, what exactly are lenders looking for? To qualify for a mortgage, you must meet the following standards. These are major indicators of your ability to pay back your mortgage.

Credit Score

Credit scores range between 300 to 850 and are based on details on your credit report. This includes your full payment history, such as how much you owe, and if you’ve missed payments before. A high credit score indicates you pay on time and manage your debt obligations well. To qualify for a conventional loan, most lenders approve a score of 680 and above. In other cases, you may be approved with a low score of 620. However, this usually means you’ll get a higher interest rate on your mortgage.

Income and Assets

Lenders assess if you have enough income to afford your mortgage and pay for other debts. Having a stable and secure job assures lenders you have a predictable source of income for mortgage payments. If you are self-employed, you must present enough proof that your business provides a sustainable source of income. You should also have assets such as savings or retirement accounts that prove you have extra funds in case of unemployment or business loss. Lenders also accept additional sources of income such as payments from overtime work, a part-time job, work bonuses, income from investments, or even child support benefits.

Debt-to-Income Ratio (DTI)

DTI ratio is a risk measurement that indicates how much of your monthly income pays for your debts. Specifically, DTI ratio is the percentage of your total monthly debts compared to your gross monthly income. There are two kinds of DTI ratios: Front-end DTI is the percentage of your income that pays for housing expenses. Meanwhile, Back-End DTI is the percentage of income that pays for housing expenses along with all other debts, such as credit card bills, car loans, students debts etc.

A higher DTI ratio means you’re not in good financial footing to acquire more debt. You will likely not be approved for a mortgage. On the other hand, a low DTI ratio means you have enough funds to pay for debt obligations. This lowers your risk to lenders, making you a more creditworthy borrower. Depending on the type of loan you choose, you must satisfy the required DTI ratio limits to secure a mortgage.

Improve Your Credit Profile

Before getting a mortgage, give yourself enough time to raise your credit score. You can fix credit issues by paying off high-interest debts, keeping your credit card balances low, and generally paying bills on time. This will increase your credit score, which may take 12 to 24 months to reflect. Reducing outstanding debt will also decrease your DTI ratio.

You can request a copy of your credit report at AnnualCreditReport.com. Borrowers can get a 40 f equal to c credit report every 12 months. Review your credit history and check for record errors. Correcting errors with your credit reporting agency will also help raise your credit score. Again, a higher credit score gives you better chances of securing a more favorable mortgage deal.

Homebuyers should avoid major purchases or loans during the approval process. Buying a new car or applying for credit cards might prove to be a deal-breaker for your loan, so put it off until after you close.

 

How to Choose the Right Payment Structure

Once you qualify for a mortgage, it’s important to choose the right payment structure as well as the length of your term. Doing so will help you manage your budget, ensuring you can pay your loan on time. Mortgages come in two main payment structures: fixed-rate mortgages (FRM) and adjustable-rate mortgages (ARM). As for payment terms, the most common ones are 30-year terms. But you may also obtain 20-year, 15-year, and 10-year terms.

Fixed-Rate Mortgages (FRM)

Historically, the 30 year fixed mortgage rates payment calculator widely purchased type of loan is a 30-year fixed-rate mortgage. This is because loans with longer terms come with cheaper monthly payments. And since fixed-rate mortgages come with locked rates, you have the benefit of the same predictable payments for the entire loan. Thus, FRMs are usually chosen by first-time homebuyers and consumers who want the security of fixed payments. If you have a tight budget, this is a suitable loan for you. It’s also ideal if you intend to live in your house for the long haul. But note that it’s usually harder to qualify for an FRM compared to an adjustable-rate mortgage.

Fixed-rate mortgages adhere to a traditional amortization schedule, which tells you the precise number of payments you need to make within the term. For example, a 30-year FRM comes with 360 payments spread throughout 30 years. However, note that 30-year FRM rates are generally higher by 0.25% to 1% than 15-year FRMs. The higher rate and longer term results in more expensive interest charges over the life of the loan.

Market Share Per Mortgage Type

According to the Urban Institute Housing Finance at a Glance, 30-year fixed mortgages accounted for 74% of new originations in September 2020. On the other hand, 15-year fixed-rate loans only comprised 17% of new mortgages, while ARMs only comprised 1.1% of the mortgage market share in September 2020.

 

Adjustable-Rate Mortgages (ARM)

ARMs, in contrast, have interest rates that eventually change after the introductory period. It typically starts off with a low rate, after which it increases or decreases depending on market performance. These come in 30-year terms and are typically taken as hybrid ARMs such as 3/1, 5/1, and 10/1 terms. For example, if you choose a 5/1 ARM, it means the introductory rate remains fixed for 5 years. After this period, your rate starts to adjust annually, which means you have to anticipate higher monthly payments. If rates continue to increase each year, you might have a hard time affording your mortgage payments.

Taking an ARM depends on your goals and your financial disposition. These are appropriate for people who plan to move and sell their house after a few years. If you’re buying a starter home and planning to move after five or so years, an ARM is a viable option. Since it usually has a low initial rate, it’s attractive to certain borrowers. On the other hand, borrowers who initially cannot qualify for a fixed-rate mortgage may take an ARM and eventually refinance their mortgage into a fixed-rate loan.

Ideally, you can start selling your house 30 year fixed mortgage rates payment calculator the introductory period ends, so you don’t have to make higher monthly payments. House flippers who purchase real estate at a discounted price also use ARMs. After they’ve made improvements on the house, they sell it in the market for a much higher price. Meanwhile, other borrowers with ARMs try to refinance into a fixed-rate loan before the introductory period ends.

Generally, ARMs are much easier to qualify for compared to fixed-rate mortgages. Experian states that ARMs are a common type of subprime mortgage. The changing rate makes it easy for lenders to earn more interest on the mortgage. However, it spells bad news for borrowers when rates increase payments. And since they are initially affordable, they are also attractive to homebuyers with good credit.

Make Sure You Can Afford Higher Payments

If you cannot sell or refinance your house as scheduled, you must be prepared to have enough funds for higher payments. Ideally, you should be able to afford it even if the loan reaches its rate cap. This is the maximum limit your rate can increase over the life of the loan. If you do not have enough funds, you risk defaulting on your loan. To avoid this, many ARM borrowers eventually refinance into a fixed-rate mortgage to secure a lower rate.

 

Comparing Fixed vs ARM Loans

To recap the differences between fixed-rate loans (FRM) and adjustable-rate mortgages (ARM), we created the chart below:

Factors That Make Up Mortgage Payments

Next, to maximize your savings, you must learn the basic components of your mortgage payments. It’s worth understanding the factors that increase or decrease your payments, and what you can do to reduce its overall cost.

A mortgage has three primary components that determine your monthly payment:

1. Principal – this is the loan amount
2. Interest Rate – based on the annual percentage rate (APR)
3. Loan Term – this is the length of your payment duration or the number of payments

Principal

The principal is the actual loan amount you borrowed from your lender. The greater the principal amount, the higher your monthly payment. To lower the principal amount, you can put forward a higher down payment. Let’s take the example below to illustrate how this works.

Using our calculator above, let’s compare the monthly payment between a 10% down and a 20% down. Suppose your home is valued at $350,000 and you’re taking a 30-year FRM at 3.5% APR.

30-Year FRM
Home Price: $350,000
Interest Rate: 3.5%

*The calculations above and below only include principal & interest; they do not include property taxes & homeowner’s insurance.

Making a larger down payment significantly diminishes the size of your principal. In the example above, a 10% down reduces your principal to $315,000, while a 20% down further decreases your principal to $280,000. If you pay 10% down, your monthly payment will cost $1,414.49. Meanwhile, with 20% down, your monthly payment is further reduced to $1,257.33. That’s savings worth $157.16 per month.

Moreover, savings are more noticeable when you compare the overall interest costs. With a 10% down, your total interest charges amount to $194,216.68. But with 20% down, your total interest costs are reduced to $172,637.05. In this example, you’ll save $21,579.63 in interest over the life of the loan.

Save for a 20% Down Payment

Financial advisors recommend making a 20% down payment on your mortgage. Besides reducing your monthly payments and boosting your interest savings, paying 20% down eliminates private mortgage insurance (PMI) on a conventional loan. PMI is an extra cost that’s around 0.5% – 1% of your annual loan amount. This is only removed once you reach 78% of your mortgage balance.

 

Interest Rate

Interest is the amount lending institutions charge for servicing loans. When you take out a mortgage, you commit to paying it 30 year fixed mortgage rates payment calculator with an assigned rate of interest. While the interest rate is determined by local and economic factors, your credit score will largely influence whether you’ll obtain a low or high rate.

The most widely used credit rating system is the FICO score (Fair Isaac Corporation). Essentially, the higher your credit score, the lower the interest rate you can obtain. FICO publishes estimated rates on their Home Purchase Center page, with corresponding credit scores and monthly payments.

Here are example rates from December 10, 2020. It’s based on the national average rate for a principal loan amount worth $300,000.

Based on the chart above, you’re likely to obtain more competitive rates with a higher credit score. Thus, it’s crucial to fix credit issues before applying for a mortgage. A lower rate will not only reduce your monthly payment. It will also decrease the overall interest you’ll pay over the life of your loan.

The following example compares the same loan with different interest rates. The first one has 3.5% APR, the second one is 3% APR, and the third one is 2.5% APR. Review the results below.

30-Year FRM
Principal Loan Amount: $280,000

The example above shows you’ll boost your interest savings with a lower interest rate. At 3.5% APR, your total interest will amount to $172,637.05. But if the APR is reduced to 3%, the total interest decreases to $144,976.87. This saves you $27,660.18 in interest charges. But if your interest rate is 2.5% APR, your total interest decreases to $118,281.87. Compared to 3.5% APR, this saves you a total of $54,355.18 in interest costs.

Apart from improving your credit score, make sure to shop around for different rates. Check at least three different lenders. It’s best to look around to ensure you can secure the most favorable rate.

Loan Term

The loan term refers to the agreed time you should pay down your mortgage. For fixed-rate mortgages, the term tells you the precise number of fixed payments needed to pay off a loan. For instance, 30-year FRMs require 360 monthly payments, while 15-year FRMs require 180 monthly payments. As long as you make payments within the agreed term, your mortgage should be paid off by the due date.

The length of your loan term also determines whether your payments will be affordable or expensive. Again, 30-year terms come are any banks open on sunday near me cheaper monthly payments. However, the longer your term, the greater interest charges accrue. Meanwhile, shorter terms such as 15-year FRM have higher monthly payments. But since it pays off your mortgage in half the time, it incurs much lower interest charges. 15-year FRMs also have rates that are lower by 0.25% to 1% than 30-year FRMs.

The following example compares two mortgages with the same loan amount but with different terms.

Principal Loan Amount: $280,000

According to this example, the monthly payment for the 15-year FRM is higher by $703.35 than the 30-year FRM. You’ll notice the monthly payment decreases when the loan term is extended to 30 years. However, when it comes to total interest, the 15-year FRM costs $72,921.56, while the 30-year FRM costs $172,637.05 in total interest. The 15-year FRM saves you $99,715.49 in interest charges compared to the 30-year loan.

Though shorter terms such as 15-year FRMs boost interest savings, not everyone can afford the higher monthly payments. Many people still end up taking a 30-year FRM. But don’t worry. There’s still a way to shorten your term and reduce your interest costs. You can do this by making small extra payments on your mortgage.

Loan Amortization

Mortgage Amortization Formula

Mortgage calculation is one of the few places your algebra classes come in handy, but it's a lot more complicated than you remember, especially considering all the variables involved in a home loan.

The formula used to calculate monthly principal and interest mortgage payments is:

P = V[n(1 + n)^t]/[(1 + n)^t - 1]

Where

• P = Monthly payment amount
• V = Loan amount
• t = Total number of payments / term of loan in months
• n = Monthly interest rate as a decimal (This is the annual interest rate divided by 12. For example, a 6% APR becomes 0.005 per month.)

The above figues out the core loan payment. To get a full picture of the cost of ownership one would also add other costs of homeownership including things like:

• real estate taxes
• homeowners insurance
• private mortgage insurance (PMI)
• maintenance
• HOA dues

The Amortization Schedule

When you take the principal, interest rate, and loan term to estimate mortgage payments, you can calculate a full amortization schedule. An amortization schedule is a table that details the number of loan payments you must make for the entire duration of your mortgage. It shows how much of each payment goes toward your interest and principal balance each pay period.

An amortization schedule indicates the following mortgage details:

• Payment date or number
• Beginning and ending balance
• Interest paid
• Principal paid

During the start of your mortgage, a large portion of your payments are applied toward the interest. But towards the latter half of your loan, a larger part of your payments goes toward paying your principal. Depending on how far along you are in your payments, you can use the amortization schedule to determine how much you still need to pay to clear your debt. And if you apply extra payments toward the principal, this decreases the principal and reduces your interest charges.

You can use our calculator above to generate your own amortization schedule.

Making Extra Mortgage Payments

Extra payments on your mortgage have the most impact during the early years of your loan. Since the principal is largest during the first years, this gradually reduces your principal loan amount, which lowers your interest charges. You can ask your lender to directly apply your extra payments toward the principal.

However, before making additional payments, make sure to ask your lender about prepayment penalty. This is an added fee that usually takes effect during the first three years of a mortgage. You can wait for the prepayment penalty to lapse before making extra payments. Most conventional mortgages have a prepayment penalty clause, though you can secure a loan without one. Meanwhile, government-backed mortgages such as FHA loans, USDA loans, and VA loans do not require prepayment penalties. You can prepay your mortgage anytime without worrying about expensive costs.

 

In Summary

Homebuying can be an overwhelming process, especially if you’re not familiar with certain terms. But with ample knowledge about the market and your mortgage options, you can secure a good deal while maximizing your savings.

First, you should undergo the mortgage qualification process, such as pre-qualification and pre-approval. Pre-approval 30 year fixed mortgage rates payment calculator an informal estimate of how much you might borrow. It’s also a good way to see if you meet basic mortgage requirements. Meanwhile, pre-approval is a formal evaluation of your creditworthiness based on verified financial information. Once you receive a pre-approval letter, you have a go-signal to shop for homes within 60 to 90 days. Before applying for a mortgage, it pays to have a high credit score, a low DTI ratio, and a stable source of income. Satisfying these factors increases your chances of getting loan approval.

Next, you must choose the right type of payment structure for your loan. There are two main payment structures for mortgages: Fixed-rate mortgages (FRM) and adjustable-rate mortgages (ARM). FRMs are usually chosen by first-time homebuyers and borrowers who prioritize predictable payments for the entire loan. On the other hand, ARM rates change depending on market conditions, which means payments can increase over time. 30 year fixed mortgage rates payment calculator who choose ARMs plan to move and sell the house after a few years. Some buyers also choose ARMs for the low introductory rate. To avoid increasing payments, many ARM borrowers eventually refinance into an FRM to lock in a fixed rate.

It’s also important to learn different factors that determine your monthly payment. These include the principal, interest rate, and loan term. A large principal means higher monthly payments and total interest charges. To reduce your principal, it’s worth making a 20% down payment. A high interest rate, meanwhile, yields higher interest charges over the life of the loan. To secure a lower rate, try to improve your credit score before applying for a mortgage. As for the loan term, longer terms such as 30-year FRMs have affordable monthly payments. However, it generates expensive interest charges. In contrast, shorter terms like 15-year FRMs have higher payments but help you save a great deal on interest costs.

As a final note, consider making extra payments on your mortgage to boost interest savings and shave a couple of years off your term. Small extra payments can help decrease your principal, which reduces your loan’s interest charges. Just be mindful of prepayment penalty rules to avoid expensive fees. If your loan has a prepayment penalty clause, you can wait for it to lapse before making additional payments.

Real Estate Buyers: Are You Unsure Which Loans You'll Qualify For?

We have partnered with Mortgage Research Center to help homebuyers and refinancers find out what loan programs they are qualified for and connect them with local lenders offering competitive interest rates.