Calculating Basic Variables

When you’re calculating your monthly payments, you need a minimum of three figures to get started:

• Sale price
• Loan amount (or down payment)
• Interest rate (not the same as APR)

The sale price will be the total price of the home. If you’re shopping online, use the list price. If you’re considering making an offer, use that figure. Next, the payment calculator needs to know how much of that value is going to be financed through a lender. Some ask for the loan amount, others ask for the dollar amount or percentage of your down payment. The third piece of data is the expected mortgage interest rate. Important: Don’t mix up APRs with interest rates. Since the add-ons for APR offers can differ from lender to lender, use the expected interest rates. The result will be your expected monthly mortgage payment — principal plus interest — for your loan.

How Variables Change Your Payment

Now that you have a baseline monthly payment estimate, feel free to start playing with these variables. Notice how it affects that monthly payment.

A couple of observations:

• A higher down payment (or lower loan amount) means a lower monthly payment.
• A lower interest rate — even by a few fractions of a point — also means a lower monthly payment.

However, notice the impact of interest rates in these two examples:

• A home purchase of $350,000, with 20% down (for a loan of $280,000), and a rate of 3.75% results in a monthly payment of $1,297.
• Conversely, a home purchase of $300,000 with 20% down (for a loan of $240,000), and a rate of 5.5% results in a monthly payment of $1,363.

The less expensive home with lower loan principal, still has a monthly payment that’s $66 higher. Over 30 years, that does add up.

Accounting for Other Variables

The bulk of your monthly payment is going to be the principal and interest you’ve just calculated. But don’t forget about other fees that typically get included with your mortgage payment:

• Property taxes
• Homeowners insurance
• Private mortgage insurance (when your equity is below 20%)

If your home will be in a neighborhood with a homeowners association than HOA fees will need to be added.

Whatever home or loan you end up choosing, make sure you’re comfortable with that monthly payment and the other costs of owning a home.