Mortgage calculations determine the loan amount that a lender is willing to provide a borrower for a home purchase, as well as the terms of the loan, such as the interest rate and monthly payments. The calculation of a mortgage is based on several factors, including the following:
- Loan amount: This is the amount of money the borrower requests from the lender. The loan amount is typically a percentage of the home’s purchase price. Still, it can vary depending on the lender and the borrower’s qualifications. Loan to value ratio, or LTV, is the ratio of what you borrow as a mortgage against how much you pay as a deposit.
- Interest rate: The interest rate is the percentage of the loan amount that the borrower must pay back to the lender in addition to the loan amount. The interest rate can vary depending on the lender, the type of loan, and the borrower’s credit score.
- The loan term is the time over which the loan must be repaid. The longer the loan term, the lower the monthly payments will be, but the total interest paid over the life of the loan will be higher. Standard loan terms include 15-year and 30-year mortgages.
- Down payment: The down payment is the amount of money that the borrower must pay upfront to the lender, usually a percentage of the home’s purchase price. A larger down payment can result in lower monthly payments and a lower interest rate.
The lender will use a mortgage calculator to determine the monthly payments based on the loan amount, interest rate and loan term.
Any lender will also consider other factors like credit score and debt-to-income ratio to determine the mortgage approval and interest rate.
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The information contained within was correct at the time of publication but is subject to change.