Browsing new Calgary townhomes for the new year? We’d like to congratulate you on your decision to buy. If you’re already feeling overwhelmed by all of the information in front of you, you aren’t alone! Many first-time homeowners struggle with the home-buying process the first time around, especially when it comes to finances. It can be difficult to wade through all the regulations, fees, and lawyer’s costs. Determining what you can afford for a mortgage? That’s even more complex.
To help you cut through the confusion, we’ll teach you how to use basic math skills to calculate down payments and monthly payments. Calculating your payment before you head to the bank can give you the power to obtain the best possible deal.
Start with a Credit Check
The biggest indicator of what you’ll receive when applying for a mortgage is your personal credit history. If you have no credit or bad credit, you can expect that the bank will require a much higher down payment and a significantly higher interest rate. In some cases, if your credit situation is severe enough, you may be denied a mortgage altogether.
So, what exactly qualifies as a good credit score? They calculate your credit score in a variety of ways, and each credit bureau can return a slightly different score. What one bank considers a good credit score may not be the same at another bank. However, the three major credit bureaus all hold loose guidelines around what qualifies as “poor,” “fair,” “good,” and “excellent.”
- >550: poor
- 550 to 650: fair
- 650 to 750: good
- 750+: excellent
If you have no credit history at all, you should score somewhere in the 500 to 550 range. However, this doesn’t necessarily preclude you from receiving a mortgage. Banks often take new credit history into consideration and are likely to think it more favorable than if you have a poor history (e.g., bankruptcy).
Once you have your credit score, jot it down along with your total household income information. You need this information for the calculation.
How to Calculate Your Down Payment
Start with the facts: How much of a mortgage are you seeking (in an ideal world)? How many years will you take to pay it off? For the purposes of this calculation, assume you are seeking a $500,000 mortgage over 30 years.
Note that the amount each bank demands for a down payment can vary dramatically and may be guided by state regulations, federal law, or even your prior credit history. You must contact the bank to determine your required percentage. Most typical down payments range from 10 percent to 20 percent; we’ll use the lesser of these as an example today:
- First, turn your percentage into a decimal:
o 10 percent = .10
- Then, multiply your total mortgage by that decimal (.10):
o $500,000 x .10 = $50,000
- The final result is your down payment ($50,000).
How to Calculate Your Mortgage Interest Rate Monthly Payments
Now that you know your down payment, here’s how you can calculate your mortgage interest rate. First, you need to confirm your bank’s standard interest rate—this can vary, depending on your credit situation, but most banks publish a daily standard starting point. For the purposes of this exercise, let’s assume your bank’s current rate is 3.7857%.
- Mortgage: $500,000
- Interest rate: 3.7857% (or .037857 as a decimal)
o $500,000 x .037857 = $18,928.50
Your total interest on the mortgage is $18,928.50. To further break this down into monthly payments, simply split the total by the number of months on your mortgage (in this case, 30 years would equal 360).
- $18,928.50/360 = $52.58
Thus, your total monthly interest payment is $52.58 per month. Bear in mind that if you pay your mortgage off sooner or later or if you renegotiate at any point, your interest payments may change.
Finding homes in Calgary, Canada, you can afford and love is every homeowner’s goal, but it certainly can be challenging in Canada’s current economic climate. Quick possession homes are an excellent alternative to brand-new homes, allowing you to find something you love for a much lower price. If you have questions about new home ownership, or to start your homeowner’s adventure, start your search with Genesis Builders Group.