HECM (Reverse Mortgage) Calculator

Typical Mortgage Cost
The principal and interest are the most significant parts of your mortgage payment. The principal is how much you borrowed, and the interest is how much you have to pay back to the lender. Your lender may collect an extra monthly amount for an escrow account. This money is paid directly to the local property tax collector and the insurance company.

• Principal: This is the total amount of money you borrowed from the lender.
• Interest Rate: This is the fee charged by the lender for lending you the money. The lender calculates the interest rate as a percent annually. As of September 2021, lenders use Constant Maturity Treasury ( CMT ) for Adjustable Rate Mortgages ( ARM ). The LIBOR is no longer in use.
• Property Taxes: The local tax assessor values your property once a year. If you have an escrow account, your monthly mortgage payment covers at least one-twelfth of your annual tax bill.
• Homeowners insurance: Your insurance policy may cover property damage and financial losses caused by fire, storms, theft, a tree falling on it, and other events. If you live in a flood zone, you'll have a second policy, and you might have a third if you live in Hurricane Alley or earthquake country. You pay one-twelfth of your annual insurance premium each month, just like property taxes, and your lender or servicer pays the balance when it's due.
• Mortgage insurance: If your down payment is less than 20% of the purchase price, you will undoubtedly be required to pay mortgage insurance, which will increase your monthly payment.

The Math Behind the Mortgage Payment
Want to discover how much your monthly mortgage payment will be? If you're good with numbers, here's a formula to assist you in manually calculating your mortgage payments:

M = P r (1 + r)n / (1 + rn) - 1

Key:

• M: total monthly mortgage payment
• P : principal loan amount
• r : your interest rate every month. Your lender gives you the interest rate as an annual number, so you'll need to divide it by 12 to get the rate for each month. So, if your rate is 5%, this is what your rate is each month:  0.004167 (0.05/12=0.004167).
• n : number of payments over the term of the loan. To find the number of payments for your loan, multiply the number of years by 12 (the number of months in a year). A 30-year fixed mortgage, for example, would have 360 payments.

You can use this formula to determine how much house you can afford. Using a mortgage calculator can help you figure out if you're putting down enough money or if you can or should change the length of your loan. It's always a good idea to compare rates from different lenders to ensure you get the best deal.

Benefits of a mortgage calculator
When establishing a housing budget, it's essential to know how much your monthly mortgage payment will be because this will most likely be your highest recurring cost. A mortgage calculator can assist you in estimating the amount of your mortgage payment as you search for a loan to purchase or refinance a home. Simply change the information you enter into the calculator to explore different options. The calculator can assist you in making the following decisions:

• Determining the ideal loan term for you. A 30-year fixed-rate mortgage is probably the best option if you have a set budget. These loans will cost you less each month, but you will pay more in interest over the life of the loan. If you have some breathing room in your budget, a 15-year fixed-rate mortgage will save you money on interest while increasing your monthly payment.
• Determining if an ARM is a better choice and worth the risk. When interest rates rise, it may be tempting to obtain a mortgage with a variable rate (ARM). ARMs typically have lower beginning interest rates than conventional loans. If you only intend to live in your house for a few years, a 5/6 ARM, which has a fixed rate for the first five years and then varies every six months, maybe a good option. However, remember how much your monthly mortgage payment may vary once the introductory rate ends.
• Suppose you spend more than you can afford. A mortgage calculator estimates how much you will pay each month, including taxes and insurance.
• How much money do you need for a down payment? Most people believe that a 20% down payment is required; however, it is not. Borrowers frequently put down as low as 3%.

Affording to Borrow
Mortgage companies must determine if you can repay the money you wish to borrow. This depends on various factors, the most important of which is the debt-to-income ratio. The debt-to-income ratio is the percentage of your pre-tax income that goes toward monthly debt payments. Lenders prefer debt-to-income ratios of 36% or less, which translates to a monthly maximum of $1,800 on a pre-tax income of $5,000. Mortgage, auto payments, student loans, minimum credit card payments, and child support are all included.

Follow the tried-and-true 28/36 percent rule if you aren't sure how much of your income should go toward housing. Many financial advisors say that you shouldn't spend more than 28% of your gross income on housing costs, like rent or mortgage payments, and no more than 36% of your gross income on debt in general.

Ways to reduce your mortgage payment
If the monthly payment you see appears out of reach, you might attempt several approaches to reduce the impact. Experiment with a few of these variables:

• Choose a longer term. Longer terms reduce monthly payments but increase interest costs.
• Spend less on the home. Borrowing less reduces mortgage payments.
• Avoid PMI. A 20% down payment (or 20% equity in a refi) eliminates private mortgage insurance (PMI) .
• Shop for a lower interest rate. Some extremely low-interest rates require you to pay points, an upfront fee.
• Invest a larger down payment. This reduces the loan size.

Ways your mortgage payment can increase.
Over time, your monthly payment can go up if:

• An increase in property taxes or homeowners insurance premiums. Most mortgage payments include these costs.
• Being late on your mortgage payments, incurring late fees
• Adjustable-rate mortgage rates can climb throughout the adjustment period.