Taking on a mortgage is one of the most significant financial decisions that you will make. It is unlikely that you will make a larger purchase than your home, and once you sign the papers and begin making your payments, you certainly will not want to risk going into foreclosure as a result of default. Using a mortgage calculator is an important part of determining whether or not you can afford the home you want. It is important to be conservative with this amount, because you don’t want to end up with a loan you can’t pay for. In Canada, this is a particularly dicey calculation at times, because you can’t sign your entire loan for one rate if you need a term longer than ten years. Even if you get a favorable rate now, if you amortize your loan for, say, 25 years, you’re going to have to renew your loan at least two times. At those renewal points, you are vulnerable to changes in the interest rate.

So how do you calculate your mortgage payment? First, figure out the exact amount of your loan. If you’re buying a $400,000 house, and you are putting 25 percent down ($100,000), that leaves you with a $300,000 mortgage. If you know your amortization period, interest rate and payment frequency, you can determine your payment amount. If you are going to end up paying for insurance through CHMC or another carrier, you’ll want to factor that in as well. Visit /financial-calculators/ and enter the information. With the example of the $300,000 mortgage, let’s say you want monthly payments for an amortization period of 15 years, with an interest rate of 3.94 percent. Your loan won’t last that long, but you pay it as though it did. If you run that through a calculator, you’ll find that the monthly payment is $2,205.26.

BC Mortgage Calculator

Once you’ve figured out that payment, though, you’re just starting to determine whether this loan is a good fit for you. If you’re dealing with a traditional lender, then their analysts will use that number to determine whether you can pay for your loan. This number goes into two different types of debt to income ratios. The first is the front end ratio, which shows the percentage of your income that you have to use for housing expenses. This includes the mortgage payment you calculated, any real estate taxes, your homeowner’s insurance, and the dues for your homeowner’s association, if applicable. Ideally, this number is less than 28 percent of your net income. The second number is the back end ratio. This includes all of your monthly debt expenses as well as that front end ratio. Ideally, that should top out at 36 percent. Your lender may show some flexibility on this if you have a high credit score, and the more important of the two numbers is the back end ratio, because it reflects the money going out the door each month. Having a high balance in a savings account (at least six months of expenses) can push that ratio as high as 50 percent. The lenders want to figure out whether your loan is likely to default or not. No one has the intention of defaulting on a loan, of course, but when the numbers don’t add up, traditional lenders are as likely as not to turn down your application.

Once you have figured out what your mortgage payment is likely to be on a monthly basis, and once you figure out whether you will be able to secure financing from a traditional source, you are ready to move forward with your loan. Amansad Financial has connected many clients with traditional funding sources; however, for those who are not quite where the bank wants them to be, we also have relationships with a network of private lenders who can provide the financing you need. The interest rate with this sort of loan is generally higher than with a traditional lender, because a failure to gain bank financing means that you represent a higher level of risk. However, for those who have socked away a large down payment (20 or 30 percent), getting that mortgage started is a preferable alternative to renting. You can use the private loan as a bridge to a time when your finances will be more attractive to a traditional lender, and you will be started on the road to equity. Give us a call today, and we will analyze your personal situation!