If you’re thinking of buying a home in the near future, you may be planning your next steps. Perhaps you’ve browsed real estate listings online, but you’re not exactly sure what would work for you financially.
Before you start looking at potential homes, you need to know what your budget is ― in other words, how much of a monthly mortgage payment you can afford.
If you’re still in the early stages of your search (you haven’t spoken with a bank or a real estate agent yet), an automatic calculator can be a good place to start, as it can give you a general idea of what your price range is.
How Does a Mortgage Calculator Work?
An automatic mortgage calculator is pretty straightforward. You type in the information you know (or an estimate) about a potential mortgage loan, and the calculator does the math for you to give you an estimated monthly payment amount.
For Minster Bank’s mortgage calculator, we require you to fill out five pieces of information in order to generate a monthly payment amount and summary report:
- • Mortgage amount
- • Term in years
- • Interest rate
- • Annual property taxes
- • Annual home insurance
Next, the step-by-step guide will explain what each term means and provide you with tips on how to determine each one for your situation.
Step 1 – Enter Mortgage Amount
The mortgage amount is the expected dollar amount of your loan ― in other words, how much you will be borrowing toward your home.
If you’re planning on putting a down payment toward the purchase of your home, do not include this in the mortgage amount ― you only want to include what you will be borrowing. A down payment is a cash payment that covers a portion of the total purchase price, and the mortgage amount is what covers the rest.
If you’re not exactly sure what mortgage amount to choose, pick a “ballpark figure” to get started. You can always adjust up or down, based on the monthly payment the calculator generates.
Step 2 – Enter Term in Years
For the next step, choose your desired term length for your mortgage. Typically, mortgages are offered in two term lengths ― 15 years or 30 years. There are advantages and disadvantages to both, so weigh the pros and cons of each to pick the best option for you.
In general, the shorter the term, the higher your monthly payment will be. So if you opt for a 15-year term, your monthly payment will be higher than it would for a 30-year term; however, your loan will also be paid off much sooner, and you will pay less interest over the life of the loan).
The more popular option is a 30-year term, which will require lower monthly payments but takes longer to pay off. However, you can choose to make extra payments above the required monthly amount if you would like to pay it off sooner.
TIP: You can also use Minster Bank’s mortgage calculator* to see how soon you can pay off your loan if you make extra payments. Just click on “Calculators” and select the dropdown option, “How quickly can I pay off my mortgage by making additional payments.”
Step 3 – Enter Interest Rate
In the past several years, fixed interest rates for mortgages have stayed relatively low, although interest rates can fluctuate at any time. If you would like to check what current interest rates are offered in Ohio (or any other state), you can use this tool from the Consumer Financial Protection Bureau.
If you’re using the Minster Bank mortgage calculator, the system will automatically list a default amount for the interest rate, but you can adjust this percentage based on what the current average is.
Step 4 – Enter Annual Property Taxes
The annual property tax amount will depend on a few factors, including the geographic area you live in and the assessed value of your home.
If you are looking for an estimate based on county, the local resources below may be helpful:
- • Tax Rates: https://auglaizecountytreasurer.org/taxrates.aspx
- • Tax Estimator: https://www.mercercountyohio.org/elected-officials/auditor/resources/tax-estimator/
- • Valuation and Tax Rates: https://co.shelby.oh.us/auditor/real-estate/valuation-and-tax-rates/
- • Miami County Auditor’s Office: https://www.miamicountyauditor.org/
- • Understanding Your Taxes: https://www.mcohio.org/government/elected_officials/treasurer/understanding_your_taxes/index.php
Step 5 – Enter Annual Home Insurance
Your annual home insurance premium will, of course, depend on the value of your home and the type or level of coverage you choose.
To give you a general idea, Bankrate.com states the average cost of homeowners insurance in the United States is $1,312 per year for a policy with $250,000 in dwelling coverage. For Ohio, the average annual premium is $1,111, or $93 monthly.
Step 6 – Calculate Monthly Payment and Summary Report
Once you have filled out the required information, click the “Calculate” button at the top of the page. The calculator will then determine two monthly payment amounts:
- • Monthly payment (PI) = monthly principal and interest payment for your mortgage
- • Monthly payment (PITI) = monthly payment including principal, interest, homeowners insurance and property taxes
In addition, you can use the calculator to generate a more detailed summary report by clicking the “View Report” button at the top of the page. The report will include the monthly payment amounts mentioned above, plus some additional information:
- • Total principal and interest payments
- • Total interest
- • Payment schedule (with breakdown of principal, interest and ending principal balance)
As an important caveat, keep in mind that using an automatic mortgage payment calculator is merely a starting point in the home buying process. We strongly recommend that you talk with a bank advisor, such as one of our mortgage loan officers, before you start working with a real estate agent to look at homes. They can help you get pre-approved for a mortgage, which will help streamline the home buying process immensely and put you at a great advantage as a buyer.
Other Ways to Use Minster Bank’s Mortgage Calculator
You can also use our mortgage calculator to answer even more of your mortgage-related questions, such as:
- • How much can I save with a 15-year mortgage?
- • Can I save money by refinancing now?
- • How quickly can I pay off my mortgage by making additional payments?
- • Should I buy a home or continue to rent?
- • And more