Mortgage is the agreement between you and lender to buy a property that the lender has the rights to take back the property if you failed to repay the money with interest i.e, paid to you to buy a property. Mortgage loan are used to buy a home or any kind of property, if you couldnot able to repay the borrow amount you have to make your property to your lender name.
A mortgage rate is the rate of interest charged on a mortgage. Mortgage rates are determined by the lender and can be either fixed, staying the same for the term of the mortgage, or variable[adjustable], fluctuating with a benchmark interest rate. Mortgage rates vary for borrowers based on their credit profile. Mortgage rate averages also rise and fall with interest rate cycles and can drastically affect the homebuyers’ market.
- The size of the loan
- The interest rate and any associated points
- The closing costs of the loan, including the lender’s fees
- The Annual Percentage Rate (APR)
- The type of interest rate and whether it can change (is it fixed or adjustable?)
- The loan term, or how long you have to repay the loan
- Whether the loan has other risky features, such as a pre-payment penalty, a balloon clause, an interest-only feature, or negative amortization
How to calculate mortgage rate?
Calculating your mortgage by hand is beneficial because you’ll learn how different factors work together to affect your monthly rate. These factors include the total amount you’re borrowing from a bank, the interest rate for the loan, and the amount of time you have to pay back your mortgage in full.
Here the formula to calculate mortgage rate
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
M = Total monthly payment
P = The total amount of your loan
I = Your interest rate, as a monthly percentage
N = The total amount of months in your timeline for paying off your mortgage
For an easy example, let’s say that the total amount of your loan is Rs.8,00,000 (P), while your total interest rate is 5%, or .05 (i). Remember that 5% is your annual interest rate, so you need to divide it by 12. Monthly, your interest rate is .05/12, which equals .00417.
The bank has given you ten years to pay off your loan, or 120 months (n). Using these numbers, your equation will be:
M = 800000 [.00417(1+0.00417)^120]/[(1+0.00417)^120-1]
To solve, calculate (1+0.00417)^120 first. Unless you can calculate exponents in your head, you’ll need the help of a calculator for this portion. We calculated 1.64767. Plugging this back into the equation:
M = 800000 [0.00417(1.64767)]/[0.64767].
Next, solve all the math within the brackets. This simplifies the equation down to just 800000 X .0106, which equals to Rs.8480.
Before calculating the mortgage rate of monthly payment make a note of below mentioned.
Know your mortage principal
The loan amount borrowed is called mortgage principal. For example, someone with Rs.1,00,000 cash can make a 20% down payment on a Rs.5,00,000 home, but will need to borrow Rs.4,00,000 from the bank to complete the purchase. The mortgage principal is Rs.4,00,000.
If you have a fixed-rate mortgage, you’ll pay the same amount each month. With each monthly mortgage payment, more money will go toward your principal, and less will go toward paying interest.
Calculate monthly interest rate
Interest rate is the extra fee to the loan you borrowed from the bank and is expressed as percea buyer with a high credit score, high down payment, and low debt-to-income ratio will secure a lower interest rate ntage value. If you want to make hand calculation of a the monthly interest rate calulate the total interest rate by total number of months in a year. Example, if your annual interest rate is 4% and for 1 year. [0.04/12= 0.0033] and the monthly interest rate will be 0.33%.
Calculate number of payments
The most common terms for a fixed-rate mortgage are 30 years and 15 years. To get the number of monthly payments you’re expected to make, multiply the number of years by 12. A 30-year mortgage would require 360 monthly payments, while a 15-year mortgage would require exactly half 180 monthly payments.
Know whether required private mortgage insurance or not
There are plenty of ways to buy a home even if you don’t have 20% for a down payment. While a smaller down payment can help first-time buyers get in the door, it comes at an extra cost. In addition to higher monthly payments from a bigger mortgage, buyers who put down less than 20% of the purchase price and take on a conventional loan — i.e. not a governmental housing loan — must pay for private mortgage insurance.
Consider property taxes
A monthly mortgage payment will often include property taxes, which are collected by the lender and then put into a specific account, at the end of the year, the taxes are paid to the government on the homeowners’ behalf.
Consider cost of homeowners insurance
Almost every homeowner who takes out a mortgage will be required to pay homeowners insurance — another cost that’s often baked into monthly mortgage payments made to the lender.