It is not every country in the world where people dream of owning their own home but it is true of a lot. Yet the thought of having to make a mortgage payment every month can be a big put off.
When you do decide that you do want your home, you will probably be looking around for a new home loan as very few people can go straight out and buy some real estate with cash.
This is the reason for mortgages. All that they are is a glorified loan where the lender takes the house you are buying and lends you money against the value. Actually you do not own your home at all really. It is the mortgage company.
Anyway, these companies are not charities and in return for lending you the money you will have to pay them extra. The amount that you pay is determined by the interest rate.
Let us assume that you borrow $100,000 from a bank and they say that it will cost you interest of 5%. That basically means that you will have to pay them 5% of your balance every year that you keep the mortgage. So, in the first year you have to pay them a mortgage payment of $5,000.
There are two basic types of mortgage. They are interest only and capital an repayment. With the first type you will owe the lender that $100,000 for the whole term of the mortgage. So if the rate of interest stayed the same, you would pay that $5,000 every year.
With the second type you pay some of the capital off every month. Note that you still have to pay the interest though.
If that $100,000 mortgage were taken for a period of 25 years you would have to pay $4,000 a year to pay off the capital. That makes a total annual payment of $9,000 to get rid of the mortgage totally over the mortgage term. In this case, the amount that you owe would be reducing so you would not have to pay as much interest each year. After 5 years you would have paid off $20,000 so you would only be paying the interest on $80,000.
Having said all that the lending companies like to make it complicated and they have a formula whereby they calculate the total of capital and interest you would pay over the whole period and then divide that by the term of the mortgage to give a mortgage payment which would stay constant all the time.
If only it were that simple. You can get a fixed interest rate for 25 years in which case that would work perfectly but it is more normal that you have a variable rate which fluctuates with the state of the economy. Then the amount you pay each month will vary.
I hope that you have a bit clearer understanding now on how a mortgage payment is calculated.
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There is full procedure for this calculations but mortgages are a good choice when one don’t have any option
The basic factors shaping your monthly mortgage payments are the size and term of the loan. ‘Size’ refers to the amount of money borrowed and ‘term’ refers to the length of time within which the loan must be fully paid back.
If you did not know how to get mortgage calculated, you should try doing this and learn so that you are not cheated
Mortgage payment calculation can be a bit difficult to understand. But you should shop around and find out before taking any mortgage payment scheme
The article give best information on calculating the mortgage payment. This is something that I often search. Thanks for the information.