If you’re thinking about buying a home or refinancing your existing mortgage, knowing how much your monthly mortgage payment will be can help you figure out if you can afford the purchase.
Mortgage payments are typically made up of two parts – interest and principal – which makes it difficult to estimate your payment amount without considering the interest rate that you’ll pay.
However, once you know this information, it’s easy to calculate your estimated monthly mortgage payment on $185,000 by following these steps.
What Is A Mortgage Payment
A mortgage is a loan used to purchase a home. The term mortgage comes from the French word for death because historically your mortgage holder had you hostage until your debt was paid off. The length of time it takes to pay off the loan varies depending on the interest rate and down payment but as of 2018, most mortgages take around 30 years.
When you buy a house with cash, there is no monthly payment at all because you’re not borrowing any money. However, when you take out a mortgage, the lender will require monthly payments or risk taking back the property. These are called mortgage payments.
The standard number of months in which people make these payments is 360 (30 years). As long as you make your scheduled payments and avoid getting into too much debt on other fronts like credit cards or car loans, it should be possible to keep up with the required amount each month.
What Do You Get With A $185,000 Mortgage
If you spend about 18% of your income to repay your mortgage it is possible to purchase a home for up to $185,000. Even if you can’t afford the full cost of the property in cash and need some help with financing such as an FHA loan that requires just 3.5% down it could work out cheaper than renting. While buying costs include more than the mortgage payment each month you also own a piece of real estate which has historically gone up in value over time.
Closing Costs
With all the work it takes to get your mortgage, you might wonder how much of your monthly budget is going to cover that mortgage payment. Maybe you’re looking at buying a condo and don’t know what the condo association fees are.
Maybe you have student loans but aren’t sure how they will affect the down payment you can afford. Knowing these details before getting started can help make some of the more difficult decisions easier!
Breakdown Of Your Monthly Payments
A mortgage has two types of payments. The first is the interest that you are paying to your lender (more about this below). The second type of payment is the amortization. This term refers to paying off the balance of your loan in equal installments until the balance reaches zero.
The monthly payment consists of both types and will fluctuate over time as interest rates change. For example, if an individual were to borrow $300,000 at 3% annual interest rate, their monthly payment would be approximately $2140. On the other hand, if they borrowed at 4% annual interest rate their monthly payment would be approximately $2400 per month.
Will My Payments Change Over Time?
The mortgage term may be for 30 years or 15 years. The monthly payments will change if there is an increase in your property taxes and homeowner’s insurance premiums. As well as increases in your property’s fair market value.
If you pay the mortgage off early, you will save money because of the lower interest rates that you would have been paying over time. If you sell your home before the end of the loan period, any equity that you receive after selling costs are deducted from the sale price goes to pay off your mortgage balance.
What Is The Average Interest Rate On A Home Loan Today?
The interest rate is what decides how much the monthly payment will be. For example, if someone has an interest rate of 4% and they have 20 years left on their mortgage with a principal amount of $185,000 and closing costs of around 2% to 4%, their mortgage payment will be about $1,019 per month.
Can I Refinance To A Better Interest Rate Or Lower Payments Later On?
You can get an adjustable-rate mortgage or an interest-only mortgage at the start of your homeownership journey and still refinance when you’re ready. For example, if you have a 30-year fixed rate mortgage but want to save money on your monthly payments after five years of homeownership, then you might refite to an interest-only loan with the same monthly payment.
In this case, you’ll have to pay more in interest over time than someone who didn’t opt for an initial low-interest loan but it’s possible that over time this will be more economical.
What Are Some Common Hurdles To Getting A Loan?
One of the hurdles you may face while trying to get approved for a loan is finding out what your monthly payment will be. In order to calculate this figure you must account for the down payment amount, interest rate (APR), and length of the loan in years. These three factors are calculated using the following equation:
where P = monthly payment; i = annual interest rate; t = term of loan (in years). So if we have $30,000 as our down payment, an APR of 5%, and a 30-year term then our monthly mortgage payments would be around $754.