So, you’re thinking about buying a house. You’ve been renting an apartment since you graduated college, and you’ve been socking some money away for a down payment. You’re still single, but you’re ready to stop throwing rent down the drain and want to start building equity in a house instead. You’ve heard a lot about the rock bottom interest rates that are available to qualified borrowers, but you’ve also heard a lot about how the housing collapse in 2008 and 2009 led to an increase in foreclosures, and how it’s really hard to get approved for a loan, so you may be intimidated by the whole process.
Alberta Mortgage Calculator
If you are looking for a property in Alberta, mortgage calculator websites like /financial-calculators/ can be a real lifesaver, because they help make the process easier to understand. It’s really difficult to wedge a $750,000 house into your budget, but once you know what the payment is going to be each month, it’s a lot easier to determine what price of home you should be looking for. In most cases, you are going to have to renew your loan at the interest rates that are prevalent at some point in the future, so you need to have some flexibility in your budget for higher interest rates down the road.
Calculating your mortgage payment is fairly simple using one of the calculator sites. Let’s consider that $750,000 house. If you have $200,000 set aside as a down payment, that means your mortgage would be $550,000. Because you’re putting more than 20 percent down, you won’t face mortgage insurance premiums that CMHC or another government-approved carrier would charge you. Next, you need to determine your payment frequency, term of interest and amortization period.
Just for this example, let’s say you agree to a ten-year fixed rate loan at 4.6 percent, amortized over 25 years. You’re going to be a little more aggressive and make bi-weekly payments rather than monthly ones. After you’ve entered all of this information into your calculator, you get the results: bi-weekly payments of $1,419.12. If you’d asked for monthly payments with all other numbers the same, your payment each month would be $3,074.76. This is slightly more than twice the bi-weekly payment, but remember that you’ll be making 26 bi-weekly payments instead of just 12 monthly ones (not 13). If you move to an accelerated bi-weekly plan, you would pay slightly more every two weeks ($1,537.38) and would end up saving more than $59,000 in interest in comparison to someone who followed the monthly payments over those 25 years.
This mortgage payment amount is just the beginning, though, when it comes to getting approval from a lender for your note. When you apply for a mortgage, the lender wants to know everything about your financial situation: your gross income, your other outstanding debts, and your available assets on hand. The reason for this is that the lender needs to determine whether the monthly payment will fit into your budget, using a couple of different ratios to make sure that you will be able to pay for this loan.
The first number a lender uses involves your total household expenses. This is sometimes called the PITH formula (principal, interest, taxes and heating costs). Take that total and divide it by your gross monthly income; the answer is your front end ratio. Most lenders like this number to be at or below 28 percent. If the number is significantly greater than that, the lender is likely to push you to buy a less expensive home, because they think that you will not be able to afford the payments over time.
The second number a lender uses takes your debts into account as well. Known as back end ratio, this takes the PITH number from before, and it also looks at your other debts (car payments, credit card debts and so on). This number should ideally be no more than 36 percent of your gross monthly income. However, if you have enough savings on hand or have some other collateral, you may be able to push that number up close to 50 percent.
If you have questions about your own situation, give one of our mortgage specialists at Amansad Financial a call today. We will be happy to review your personal situation and make the best recommendations. Give us a call today!