Synchronize your brain with mortgage dictionary to understand the basic concepts of mortgage. Everybody will finance a mortgage loan in some point of life. In fact, a large percentage of the total household credit in North America constitutes residential mortgage. Since purchasing a home is substantial amount of money, Residential Mortgage is the most common way to acquire a home.
The physical property holds and secures the loan. It is a loan to finance the purchase of property, or real estate in a specified period payment and interest rates. The lenders serve the right to repossess the property or real estate in case of default.
The borrower promises to the pay the original principal amount which is the face value of the mortgage.
Mortgagor and Mortgagee
Mortgagor is also called the borrower or owner, while Mortgagee is also called the lender. In the mortgage contract, it states the lender who serves the right to repossess the real estate in the event of default. You can also see the same information on the title of the property which is registered at the provincial government’s land title office.
The lender usually sets up a 20 or 25 year amortization period which is how long to repay the whole mortgage. The term of a mortgage divides the amortization period into several length of time. Most Mortgagees commonly offers 6 months to 5 year term in fixed interest rates.
First mortgage and Second mortgage
The first mortgage refers to the current mortgage, while the second mortgage refers to the additional mortgage. Financial institutions offer Home Equity Loans and Home Improvement Loans which are good example of second mortgage.
The borrower wants to know how much can he borrow. First, he went to many website to use the Affordability Mortgage Calculators. He got a quote from the calculator. Second, he asks a mortgage lender. The mortgage lender gave him a quote. Finally, he asks another mortgage lender. The latest mortgage lender gave him another quote which does not match the previous quotes. Nobody is at fault here. Each lender has unique criteria on how much can you qualify for the maximum mortgage loan.
Here are the three common factors to qualify for mortgage loan:
- In Loan to Value ratio, a certain value of property must not exceed the loan.
- In Gross Debt Service (GDS) ratio, a percentage of gross income must not exceed the payment.
- In Total Debt Service (TDS) ratio, a percentage of gross income must not exceed payment, home expenses, and total debt.
Maximum Monthly Mortgage Payment
The borrower earns $120,000 annual gross income. And, he pays $1,500 monthly obligations, $3,500 annual property tax, and $300 annual home insurance. Also, he is contemplating on a 6.5% interest rate and 30 year mortgage. Our affordability mortgage calculator uses GDS 32%, TDS 40%, and Loan to Value Ratio 75%.
[(annual gross income * GDS rate) - annual property tax - annual home insurance] / 12
[($120,000 * 0.32) - $3,500 - $300] / 12
([(annual gross income * GDS rate) - annual property tax - annual home insurance] / 12) - monthly obligations
([($120,000 * 0.40) - $3,500 - $300] / 12) - $1,500
The maximum monthly mortgage payment is the lesser between GDS and TDS. Your maximum monthly mortgage payment is $2,183.33, since TDS is lesser than GDS.
Maximum Mortgage Amount
$2,183.33 [1 - (1 + [6.5% / 100 / 12])-30 * 12 ] / [6.5% / 100 / 12]
$2,183.33[1 - (1 + [0.005417])-360 ] / [0.005417]
The maximum mortgage amount comes to $345,426.96
Loan to value ratio (LVR)
The usual Loan to Value ratio for the first time borrower is 75%. Loan to Value Ratio tells us that the borrower can borrow $460,569.28 with $115,142.32 down payment ($460,569.28 Loan to Value ratio - $345,426.96 maximum mortgage amount).
Maximum mortgage amount / Loan to Value Ratio 75%.
$345,426.96 / 0.75
With Affordability Mortgage Calculators, you can easily determine maximum monthly mortgage payment, and maximum mortgage amount that you qualify.
Are you looking to pay off your mortgage sooner without additional lump sum payment? Your lender allows you to pay a certain percentage once or twice in a year. Usually, the lender allows 20% of the principal. For example, your principal amount sums up to $100,000. You can pay up to $20,000 of additional lump sum payment. Sometimes, lump sum payment can be hard on your pocket. You might consider bi-weekly mortgage payment. In a bi-weekly plan, you make additional lump sum payment on a regular basis on a smaller amount.
You pay every two weeks rather than every month. You make 12 payments for monthly payment in a year, while you make 26 payments for bi-weekly payment in year. Since you make more payment, you put more money to reduce the total mortgage amount. For example, you pay $1,000 per month in a monthly payment plan. In a bi-weekly payment plan, you pay $500 every two weeks.
Let's put what we learn to work. To calculate your bi-weekly payment, calculate your monthly payment. Divide your monthly payment by 2. Suppose you want to know the monthly payment for a 30 year mortgage for $150,000 at 5% interest rate. Rate equals .00417 which is interest rate divide by twelve months, while number of payments equals 360 (30 years X 12 months). You pay $402.62 every two weeks.
= ([P(1 + r)nr]/[(1 + r)n - 1])/2
= ([$150,000(1 + 0.00417)360 0.00417] /
[(1 + 0.00417)360 - 1])/2
= (2797.92 / 3.47) / 2
Since you pay $402.62 every two weeks, you save 4 years 9 months, and $25,767.44. Find out how much you can save from this bi-weekly payment mortgage calculator.
To calculate the monthly payment of your mortgage is the most basic calculation in terms of mortgage. You can apply the same calculation for loans. That is why mortgage monthly payment calculator is also called loan payment calculator. To be safe, make sure you stay below forty percent of your net income. For example, 40% of $4,000 comes to $1,440 mortgage payment.
Here is the mortgage monthly payment formula:
payment = [P(1 + r)nr]/[(1 + r)n - 1]
Here are the amounts that you need:
- P means principal amount of loan.
- r means interest rate. To get the rate divide the interest rate by twelve months, because there are twelve months in year.
- n means the number of payments. Basically, multiply number of years by twelve months.
Suppose you want to know the monthly payment for a 30 year mortgage for $100,000 at 7% interest rate. Rate equals .00583 which is interest rate divide by twelve months, while number of payments equals 360 (30 years X 12 months). You pay $665 mortgage monthly payment per month.
Here is the actual calculation:
|payment|| = [$100,000(1 + .00583)360 x 0.00583] / |
[(1 + 0 .00583)360 - 1]
| || = $665.30|
4 Aces Mortgage unleashes a mortgage calculator
After months of development, we are ready to unleash our mortgage calculators. There were challenges on the ways. We persevered. And, here it is for public interests. Stay tuned to our latest upgrade. New features, calculation, and functionality are on the works to aid you.
Calculate different mortgage calculation in the comfort of your home. As long as you have internet access, this mortgage calculators is ready to give answers. Get answers that you need to make that important financial decisions. So far, we created ten mortgage calculators to suit your needs. This includes monthly payment, bi-weekly, additional Payment, affordability, income needed, refinancing savings, discount points, tax deduction, annual percentage rate, and interest only mortgage calculators.
With mortgage dictionary, add to favorites, resource links, reports, and schedules features, the mortgage calculators packs a punch. Find the meaning of any mortgage terms that starts with a specific letter or display all the mortgage terms from the built-in mortgage dictionary. Add this website to your favorites with a click on the mouse. Collection of resource links provides extra help to understand whatever you need to know. Create reports and schedules to see the advantage or disadvantage of refinancing or financing a loan or mortgage.
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