What is a Mortgage?
Mortgages entail borrowing money secured by property, typically real estate. It involves a lender assisting the buyer in paying the seller of a property, with the buyer agreeing to repay the borrowed amount over a specified period, often 15 or 30 years in the U.S. Monthly payments consist of the principal amount borrowed and the interest paid to the lender. Additionally, an escrow account may cover property taxes and insurance costs. Ownership of the mortgaged property is fully attained upon completion of all payments. In the U.S., the conventional 30 - year fixed - interest loan is the most prevalent, facilitating homeownership for many.
Key Features of Mortgage Calculator:
The Mortgage Calculator helps estimate the monthly payment due along with other financial costs associated with mortgages. The calculator is mainly intended for use by U.S. residents. Key components of a mortgage, which also form the basis of the mortgage calculator, include:
- Loan amount: The sum borrowed from a lender, typically the purchase price minus any down payment.
- Down payment: An upfront payment, usually a percentage of the total price, covering a portion of the purchase price.
- Loan term: The duration over which the loan must be repaid, often 15, 20, or 30 years for fixed - rate mortgages.
- Interest rate: The percentage charged by the lender for borrowing, expressed as either fixed - rate or adjustable - rate mortgages.
Monthly mortgage payments constitute the primary financial burden of homeownership, but there are additional recurring and non - recurring costs to consider:
Recurring costs:
- Property taxes: Taxes paid to governing authorities based on property value.
- Home insurance: Protection against property - related accidents and liabilities.
- Private mortgage insurance (PMI): Protects lenders if the borrower fails to repay the loan. However, if the downpayment or equity in the house is 20% of house price or greater, the PMI insurance is not required. Private mortgage insurance rates are typically 0.5% to 1.0% of the value of the mortgage.
- HOA fees: Fees imposed by homeowner's associations for property upkeep.
- Other costs: These costs include utilities, home maintenance costs, and anything pertaining to the general upkeep of the property. It is common to spend 1% or more of the property value on annual maintenance alone.
Non-recurring costs:
- Closing costs: Fees paid at the closing of a real estate transaction, which can be substantial.
- Initial renovations: Optional expenses for pre-move-in renovations.
- Miscellaneous: One-time costs such as new furniture, appliances, and moving expenses.
These components collectively contribute to the overall financial commitment and responsibilities associated with homeownership and mortgage agreements.
Related Calculators
Video Instructions to Use Mortgage Calculator: