4 Basic Functions Of A Mortgage That Will Reveal Everything

By on August 17, 2017

A mortgage’s repayment is basically calculated using just 4 simple functions.

  1. Length of loan
  2. Interest rate
  3. Loan quantum
  4. Payment

By using these 4 variables like an algebra equation, you can easily work out any of them as long as you have the other 3 variables.

Who says this is difficult?

Professionals in the industry make it look tedious and complex with equations that stretch out over 2 pages. They do this partly to confuse you and give you the impression that there is a “lot of work” and mechanics behind these things that is well worth the high interest rates.

It is actually much more simpler than that.

So if we have the length of loan, interest rate and loan quantum, we can work out the monthly payment.

If we take for example:

Length: 30 years

Interest rate: 5%

Quantum: $200,000

Payments = $1,074

And if you have the payments, amount financed and the term, you will be able to work out the interest rates.

This might seem like a basic formula that is easy to comprehend.

That is true. But the problem is that home owners and buyers do not apply it often enough when making their financing decisions.

With another example, if your objective is to keep your monthly installments at no more than $1,000 a month on a $120,000 loan, here are your options.

Payment: $1,000

Length: ???

Quantum: $120,000

Interest: 5%

A 20 year tenor will mean a monthly payment of $1,104.

This means that you have to extend the term to pull down the monthly repayment.

With such criteria, you have to take up a length of at least 27 years so that you do not exceed your $1,000 per month budget.

Either that or, you have to find a loan with a lower interest rate.

It is by using these simple calculations that you will be making a more informed decision on your mortgages. Your personal goals will also determine what kind of arrangements will suit you.

For example, if you have retirement plans within a certain number of years, that is bound to affect your decision.

The main reason why so many home owners are stuck with a mortgage that they are complaining about is because they did not really do their sums initially before signing up for one.

Often times, you only start working out the numbers after signing on the dotted line. That is when you sometimes realize that you have been taken for a ride or that the terms does really suit you in your situation.

The cautious thing to do is to work out these calculations before that. Tabulate the numbers and compare between lender quotes.

If your preferred lender is not flexible in adjusting these variables to suit your needs, seek out more offers from other lenders and financial institutions.

There is bound to be one that will give you something suitable.

When it comes to paying your mortgage

A mortgage payment may be assigned to you if you take a loan from a bank for various purposes.

There may be different kinds of rates for settling this amount. You may have to pay them accordingly.

Some people get confused about the time of paying a payment. It should come after you pay your taxes and interest rates.

However, the duration of this payment may depend on the time given by the bank and your own capability to paying it.

There are a number of factors which you should consider while making a payment in this regard. It could surround about your financial condition and the amount of loan which you have taken.

But remember that the sooner you clear your payment, the earlier you could get relief from those legal bonds signed during the procedure of taking a loan for serving various purposes, like buying a home or commercial property.

But whatever may be the case, a payment is always better to pay last and this term should be considered properly.

Reasons of making a payment last

Paying could save you from the problems of clearing those legal workings which are followed while taking a loan. It is a payment charged by the bank on the term of loan for which you have applied for this financial assistance.

Most of the people often remain confused regarding this payment.

You should calculate your taxes and other charges like interest rates and monthly premiums before deciding to pay a mortgage.

If you are clear with all these payments and charges, you could enjoy paying a clear amount in the end.

So it would result in a better proceeding of your legal work which is attached in the process of taking a loan. Even private lenders also charge a mortgage fee.

So if you are taking loan from them, make sure to know the amount which you will have to pay. And it would be better if you pay this amount in the end after analyzing all the payments and clearing all the other charges.

This would easy your burden in this regard.

Any kind of confusion should be avoided in this case

Some people think that it is a smart way to pay charges in the whole year in small amounts by dividing the whole amount. They think that in this way, they could easily pay this charge.

But this kind of process and work-out often results in a lot of confusion.

Many people end up getting frustrated about the amount which they have to pay as a mortgage charge. So in order to avoid this confusion, keep the time of main payments on a priority list and do the payment in the end.

If you just follow the rule of paying your mortgage bill in the end, you would save a great deal of comfort and get a clear view of all your billings. So it is important to keep this bill a last task while repaying for the loan which you have taken.



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