To buy or purchase a home remains a tough and important decision in our life. Almost all of us will buy or refinance a home. Here is a list of important calculators to help you make the decisions. Calculators provides a way to pay off mortgage earlier, build equity faster, understand financial options, compare interest rate, and optimize the mortgage.
Homeowners usually pay a single mortgage payment for a month. This calculator computes how much is the monthly mortgage payments. Since mortgage lender offers different interest rates, homeowner tries the different interest rate to see the advantage over the other. As a safety precaution, many homeowners try to go below 40% of their monthly income.
The homeowners with this option pay off the mortgage around 7 to 15 years earlier without refinancing. Since the homeowners pays off the mortgage every two weeks, more money pays off the principal.
Additional or Extra Payment
Mortgage Lender gives you a chance to pay a certain percentage of the principal as additional or extra mortgage payment once or twice per year. Usually, the mortgage lender lets homeowners pay 20% of the principal as additional or extra payment.
Interest Only Payment
This mortgage option lets the homeowner only pays the interest of the mortgage for a specific or certain period of the mortgage term. With the right property, the homeowners build equity really fast. If the homeowners use the savings of paying interest only, this option delivers huge benefits to the home owner.
It figures out how much the home buyer can borrow. There are three factors that determine home buyers qualifications to be able to afford the mortgage and home. First, Loan to Value Ratio aims the appraisal value of the property does not exceed the loan. Secondly, the Gross Debt Service Ratio aims the percentage of gross income does not exceed mortgage payment. Finally, the Total Debt Service Ratio aims the percentage of gross income does not exceed mortgage payment, home expenses, and total debt.
This answers the big question. Can you afford to pay the mortgage with your current income? Using the principal amount, mortgage term, interest rate, property taxes, and monthly obligations, the home buyers are able to know the income that is requirement to facilitate the mortgage.
Mortgage Interest and Discount Points delivers a huge tax benefits for the home owners. Internal Revenue Services (IRS) allows the home owners to deduct the mortgage interest and discount points. Keep up to date with IRS and tax advisor for the current laws and regulations.
Annual Percentage Rate
Naturally, the home buyers just shop for the lowest interest rate without paying attention to the annual percentage rate. It is the true cost of borrowing. The lowest interest rate does not necessarily translate to lowest mortgage payment. By law, the mortgage lender must disclose the annual percentage rate to the home buyer.
Depending on how much the annual percentage rate or interest rate of the new mortgage, the home owners may or may not find an advantage to switch interest rate. Sometimes, mortgage lender gives timely promotions or specials. And, the home owners switch interest rate. At the end of the mortgage term, the home owner is force to switch interest rate. The home buyers often shops for a better interest rate before the end of the mortgage term.
Home owners have options to save on mortgage, but they give up so soon. Mortgage covers a broad range of subject. Without tools, resources, and calculators, homeowners bound to give up.
To be able to fully understand the concepts of residential real estate appraisal, here is a list of important terms with meaning. Appraisal becomes important in times of selling the property, buying a property, divorcing the partner, settling the estate, and relocating an employee. In some point of our lifetime, we are going to encounter appraisals at least once.
Fair Market Value
It is the median price between the highest price acceptable to buyer and lowest price acceptable to seller.
It is the most likely price at which the property would sell. The property must sell at a right price in which the price is not too high and low. Thus, an overprice property will sell a little longer. In most cases, an overprice property sells when the market value catch up with the selling price.
It is often confuse with Market Value. Price differs slightly from Market Value. Although the Market Value gives the seller an idea how much to sell the property, the price may be higher or lower than the Market Value. For example, a buyer is willing to pay $20,000 more than the Market Value. This happens when there are many potential buyers for the property.
Value in Use
This relates to the net present value (NPV) of the property use. The NPV is the difference between present value of cash inflow and outflow. For example, a home buyer wants to purchase a property. He estimates the future cash flow that the property would generate. Then, he discounts the cash flow into a lump sum value amount. Let us say $450,000. If the home owner sells less than $450,000, the home buyer considers in purchasing the property.
It is the amount that the investor would pay to acquire the property. The Investment Value may be higher or lower than the fair Market value.
The Insurance Policy covers the value of the property which is the Insurable Value.
It is the property which the appraiser evaluates or analyzes. The Appraiser analyzes the location, amenities, and condition of the subject property to arrive to the fair market value.
Comparables or Comps
Appraiser compares the subject property to another local property. The other local property is called Comparables or Comps. With the information from Comparables or Comps, the Appraiser calculates the fair market value of the subject property.
Real Estate Appraisal covers a huge scope. It is impossible to include all appraisal terms. For any missing key terms, you may consider online mortgage dictionary. A dictionary awaits your command. In an instant, it searches for possible definition.
Appraiser puts a price to the fair market value (rights of ownership). With the current location, amenities, and condition of the property, the appraisers write a detailed report. The detailed report states the comparison of local homes, imperfection of property, type of home, and danger to property. By the end of appraisal, the appraiser knows more about the property than the home owner.
On the process of applying for mortgage, the lender requires the selling price to meet or exceed the appraise value. The appraise value protects the lender in case of default on mortgage payments. That is why an appraiser is usually a third party with no financial connection to the lender, seller, or buyer.
Common Appraisal Approach
The three approaches to effectively appraise a real estate property are Sales Comparison, Cost, and Income Approach. In Sales Comparison Approach, the appraiser finds comparables or comps. The comparables or comps are another property in the same vicinity or location. There are no two properties exactly the same. So, the appraiser takes notes of the similarities and characteristics.
In Cost Approach, the appraisers check how much to build the residential real estate property. This approach plays a major role to new homes in which you can easily calculate the cost to build a new home. For many areas with booming real estate, the shortage of skilled labor drives the cost to build a new home high.
As for Income Approach, the appraiser checks the ability for the property to earn an income. For example, the home owner added a carport. Many tenants are willing to pay extra for the use of a carport. Let us say the home owner transform the carport into another room with kitchen and bathroom. The home owner can rent out the new room. The recent addition to the property increases the appraise value.
Common Use of Appraisal Value
The appraise value plays an important role on mortgage application, mortgage refinance, divorce, estate settlement, employee relocation, and buyer offer. As you are aware on mortgage application and refinance, the home selling price must meet or exceed the appraise value.
When the time comes to partition the ownership of the real estate property, the appraise value becomes important once again. For example, the divorce, or estate settlement are good examples.
An employee may opt to take another position in their company. This happens to promotion. The management positions are usually at the head office. So, the company helps an employee to relocate. The employee has no idea about the fair market value of the new location. With the appraise value available, he makes a correct offer.
Internal Revenue Service (IRS) still allows home owners to deduct mortgage interest on tax return. To qualify for the tax deduction, the home must be first or second home, the debt must be secured, the purchase price must not exceed $1,000,000, and the home loans equity must not exceed $100,000.
For an Interest Only Mortgage, you do not need to calculate. The whole amount is tax deduction. This article is useful for regular mortgage payment in which you need to calculate the mortgage interest tax deduction yearly. To avoid mistake, you can use the value on form 1098 which is sent by the lender every year. However, you might consider verify the accuracy of form 1098. Thus, you need to know how to calculate mortgage interest tax deduction.
The home owner pays off the principal for every mortgage payment. Therefore, the mortgage interest tax deduction changes every year. For example, the home owner purchases a home for $250,000 principal, 30 years, and 6.5% interest. The monthly mortgage payment $1,580.17. The interest on the first payment equals $1352.50 ($250,000 principal x (6.5 % interest / 100 / 12 periods)). Thereby, you add the interest for each payment in the year. The principal is different every payment. For example, the next principal equals $249, 772.33 ($250,000 principal – 1580.17 mortgage payment + [$250,000 principal x (6.5 % interest / 100 / 12 periods)] ). This translates to $16,167.13 mortgage interest tax deduction for the first year.
It is advisable to check with Tax Advisor and IRS with the current tax regulations and laws. The tax regulations and laws may change yearly.
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