Know Your Home Mortgage Loan Payment Outlook

You’ve been offered a loan and the numbers look good. But it’s difficult to know exactly what your monthly payments will be. After all, this is the number you will need to budget for each month for a long time. Let’s make sure it’s a number you can live with.

How much will my fixed mortgage payments be?

Don’t be surprised when you get your first mortgage payment – find out exactly what to budget for each month.

Fixed-rate mortgages make it fairly easy to determine your monthly payments. Adding in your other costs like property tax and PMI can give you a more accurate estimate. It’s a good idea to factor in any recurring costs associated with your loan to help you determine if you can afford it.

ARMs are more complicated than fixed-rate loans and there are two factors you should know about that determine your payments – the index and margin. The index is what your interest rates are tied to. Ask your lender which index they use and how it compares to other indices.

The margin is extra points your lender charges for the loan. The index plus the margin determines your interest rate. At the end of your initial period, the margin and current index rate are added together to determine your new interest rate. Margins are included in most ARMs, so make sure this is a number you can live with. The combination of both higher interest rates and your margin can often cause your payments to increase quite a bit at each adjustment.

How much will my adjustable rate payments be?

See how much you will be paying each month when your ARM adjusts.

For example, if you buy a 3/1 ARM at an initial rate of 5% and interest rates continue to rise over the next 3 years to around 7%, you would pay the 7% interest rate plus your margin (say 2.5%) for a new interest rate of 9.5%. As you can see, when ARMs adjust, you can be hit with a substantial payment increase. Most ARMs have a lifetime cap which stops the total interest rate from exceeding a certain number. Be sure you ask about both the margin and lifetime cap when getting into an ARM – and make sure these are numbers you can tolerate if and when you have to encounter them.

Can I lower my payments?

Should I pay points to lower the rate?

See exactly how long you need to keep your loan to make paying points worth it.

If the monthly mortgage payment seems too high, you may have the option of lowering your monthly payments by paying points. Points are equivalent to paying interest up front. If you plan to stay in your home for while, it makes sense to pay points to bring your monthly payments down. Are you going to stay in your home for a while? If so, let’s see how paying points can lower your monthly payments.

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