Mortgage Repayment Calculator

What is a home mortgage?

A home mortgage is a type of loan that is used to finance the purchase of a home or property. When someone takes out a mortgage, they borrow money from a lender (such as a bank or other financial institution) to pay for the home, and then pay back the loan over time, typically with interest.

Mortgages are typically paid back over a period of 15 to 30 years, although the exact terms of the loan will depend on the specific lender and the borrower's financial situation. In general, borrowers will need to make regular monthly payments on their mortgage, which will include both the principal (the amount borrowed) and interest (the cost of borrowing the money).

Mortgages are secured loans, which means that the property being purchased is used as collateral for the loan. This means that if the borrower is unable to make their mortgage payments, the lender may be able to foreclose on the property and sell it to recover their money.

How to calculate mortgage payments

The formula to calculate mortgage repayments can be quite intimidating. Mortgage repayments are calculated based on several factors, including the loan amount, the interest rate, and the loan term. Here's a general formula for calculating mortgage repayments:

$M = P\times \frac {i(1 + i)^n} {(1 + i)^n-1}$

Where:

• M = the monthly mortgage payment
• P = the principal amount (the amount of the loan)
• i = the monthly interest rate (annual interest rate divided by 12)
• n = the number of monthly payments (the loan term in months)

To calculate the monthly mortgage payment, you can plug these values into the formula and solve for M. Alternatively, you can use our online mortgage calculator above (which let's face it, is much easier!).

How can you lower the cost of your mortgage?

There are several ways to lower the cost of a mortgage:

1. Increase your down payment: The more money you can put down on a home upfront, the lower your monthly mortgage payments will be. This is because a larger down payment means you are borrowing less money, which can lead to a lower interest rate and a shorter loan term.
2. Choose a shorter loan term: While shorter loan terms often come with higher monthly payments, they can save you money in the long run by reducing the total amount of interest you pay over the life of the loan.
3. Consider paying points: Paying "points" on a mortgage means paying a fee upfront in exchange for a lower interest rate. This can be a good option for borrowers who plan to stay in the home for a long time, as it can lead to significant savings over the life of the loan.
4. Shop around for the best interest rate: Different lenders offer different interest rates, so it's important to compare offers from multiple lenders to find the best deal. Even a small difference in interest rates can have a significant impact on the total cost of the mortgage over time.

Types of home mortgages (USA)

There are several types of home mortgages available to homebuyers in the USA. Each is designed to suit different financial situations and preferences. Here are some common types of home mortgages:

1. Fixed-Rate Mortgage (FRM): A fixed-rate mortgage is one of the most popular types of home loans. With an FRM, the interest rate remains constant throughout the loan's term. This means that the monthly principal and interest payments do not change, providing stability and predictability for homeowners.
2. Adjustable-Rate Mortgage (ARM): Unlike a fixed-rate mortgage, an adjustable-rate mortgage has an interest rate that can fluctuate over time. Typically, ARMs offer a lower initial interest rate for a specified period (introductory rate), and after that, the rate adjusts periodically based on an index. ARMs can be beneficial if you plan to sell the property before the rate adjusts or if you expect interest rates to decrease.
3. Government-Insured Mortgages:
   1. FHA Loans: These are loans insured by the Federal Housing Administration (FHA) and are designed to help first-time homebuyers and those with lower credit scores. FHA loans typically require a lower down payment, making homeownership more accessible to a broader range of buyers.
   2. VA Loans: Offered to veterans, active-duty service members, and eligible surviving spouses, VA loans are guaranteed by the Department of Veterans Affairs (VA). They often come with more favorable terms, including no down payment or private mortgage insurance (PMI) requirements.
4. Conventional Mortgage: A conventional mortgage is not insured or guaranteed by any government agency. These loans typically have more stringent credit and down payment requirements compared to government-insured loans. However, they often offer competitive interest rates and flexible terms.
5. Jumbo Mortgage: A jumbo mortgage is a loan that exceeds the conforming loan limits set by government-sponsored entities like Fannie Mae and Freddie Mac. As a result, jumbo loans are used for higher-priced properties and generally require higher credit scores and larger down payments.
6. Interest-Only Mortgage: With an interest-only mortgage, borrowers are required to pay only the interest on the loan for a specific period (usually the first few years). After the interest-only period, borrowers must start making principal and interest payments. Interest-only mortgages can provide lower initial payments but may lead to higher payments later on.
7. Balloon Mortgage: Balloon mortgages offer lower monthly payments for a fixed period (often 5 or 7 years). However, at the end of the term, the remaining balance must be paid off in full (balloon payment). Borrowers often refinance or sell the property before the balloon payment is due.
8. Reverse Mortgage: Reserved for homeowners aged 62 and older, a reverse mortgage allows them to access the equity in their homes while still living in them. Instead of making monthly payments to the lender, homeowners receive payments from the lender.
9. USDA Loans: Offered by the United States Department of Agriculture (USDA), these loans are designed to encourage rural homeownership. They often come with low or zero down payment options and lower interest rates.

Each type of mortgage has its advantages and disadvantages, so it's essential for homebuyers to carefully consider their financial situation and long-term goals before choosing the most suitable option. Consulting with a mortgage professional can also help in understanding the available choices and finding the best fit for individual needs.