If you’re planning to take out a loan to buy a house, the chances are that you are curious about how much your monthly mortgage payment would be. Many people make the mistake of trying to determine theirs by checking the overall average mortgage payment. However, this is not good for predictions. Instead, you should check the median house mortgage payment of your country. In the United States, the American Housing Survey has reported the median to be $1100. Even so, yours could be considerably higher or lower. That is because several factors are used to determine mortgage payment. You can check this link right here now to learn more about home mortgage payments.
Factors That Determine the Price of a House Mortgage
Financial institutions or lenders use certain tools or interest calculators to determine the interest rate of a mortgage loan. The final interest rate is then used to calculate the monthly payment. Below are some of the tools and factors used in setting mortgage rates.
Market Interest Rate
Anyone conversant with the financial sector knows that the interest rate is volatile. It fluctuates based on the market. Mortgage rates fluctuate simultaneously with market interest rates. This will inevitably affect your monthly mortgage payment.
Type of Interest Rate
There are two types of interest rate:
- Fixed-rate: If the mortgage loan term states that it’s on a fixed interest rate, the interest rate will be the same throughout the mortgage’s lifespan. This means if your interest rate is calculated to be $1200 monthly, you will keep paying the same amount no matter what happens.
- Adjustable-Rate Mortgage: This kind of rate is dependent on the market fluctuations. Usually, you will be placed on a fixed rate for a certain number of years, possibly 5 or 10 years. After 5 or 10 years have passed, your interest rate will be determined by the market rate. If the market rate drops, your monthly mortgage payment will reduce. Also, if the rate increases, so does the amount you’re supposed to pay.
Terms
This usually refers to an agreement on the number of years you have to pay back the loan amount. It could range from 15 years upward. Financial institutions tend to increase the interest rate for those whose mortgage loan lasts for longer years. That is because longer terms are considered to be riskier. The financial institution, however, has to protect its interests.
Home Value
The projected value of the home you want to buy is an important tool in calculating the interest to be paid. The lenders compare the projected value of the property with the loan to be given. This is called the Loan-To-Value Ratio or LTV. If the home’s appraised value is significantly higher than the loan, you may be offered a lower interest rate.
Income
Aside from the LTV ratio, lenders also use a DTI ratio. This is a ratio of the monthly debt requirement to the money you earn monthly. Oftentimes, a high DTI ratio will mean a higher interest rate.
FICO Score
Fico score is simply your credit score. A credit score is a requirement for most kinds of loans and not just mortgage loans. Generally, people with low FICO scores are considered to have bad credit. If you have a low score, you may not be eligible for a mortgage loan. And if you are, you will most likely pay a higher interest. Lenders don’t trust people with bad credit and consider it to be a precarious investment. Hence, lenders will increase the interest rate to reduce the risks.
Location of the Property
The development of the area in which the property is situated also affects the interest rate. The interest rate for a property in a rural area will be different from the interest for a property in an urban or even more slightly developed area.
Down Payment
You will most likely be offered a lower interest rate when you make a large down payment. A large down payment means less risk for the financial institution. It means you’ve already taken up a large stake in purchasing the property.
Although checking for your country’s median or average mortgage payment may help you predict how much you may have to pay, you shouldn’t trust the figures obtained entirely. The best way to know for sure is through a mortgage lender.
