 TITLE: Mortgage Calculator CONTENT: Shopping for a new home is a time of dreams and possibilities, but navigating the mortgage process can also make it stressful and confusing. Differences in interest rates and repayment terms can complicate the process of comparing mortgage offers.\nThe Experian Mortgage Calculator is designed to help you make sense of it all. This helpful tool takes some of the complexity out of shopping for mortgage loans and choosing the offer that’s best for you.\nRead on to learn how the calculator works, and how it can help you better understand the mortgage process.\n†The information provided is for educational purposes only and should not be construed as financial advice. Experian cannot guarantee the accuracy of the results provided. Your lender may charge other fees which have not been factored in this calculation. These results, based on the information provided by you, represent an estimate and you should consult your own financial advisor regarding your particular needs.\nHow to Use This Calculator\n--------------------------\nThe Experian Mortgage calculator can help you understand how differences in rates and repayment terms affect the amount of your monthly payment and the total cost of a home over time. It requires just a few pieces of information to get started. If you add a few more details using the calculator’s optional Advanced Options, you can get an even clearer idea of what your monthly mortgage payment might look like for different loans.\n*   **Home Price**: This is the amount you’ll pay the home seller. If you’re in the early stages of home shopping, use the sellers’ asking prices for comparison, but keep in mind that figure is negotiable. If you’re shopping in a highly competitive market and expect to be one of several bidders, you may want to make an offer higher than the asking price. In slower markets or with properties that have been on the market for extended periods, a bid below asking price could succeed. Work with a real estate professional to determine your offer strategy.\n*   **Down Payment**: When you enter the Home Price, the calculator automatically fills in the Down Payment field to reflect 20% of the home price. That’s the standard down payment required for most conventional mortgages. Many mortgage lenders, including those that issue federally backed loans, will accept lower down payments, typically in exchange for higher interest rates and\/or fees—and with the stipulation that you pay mortgage insurance, which you can account for in the calculator’s Advanced Features. (If you’re in a position to make a higher down payment, you can account for that here as well.) You can adjust this entry by changing either the percentage figure or the dollar amount.\n*   **Term (in years)**: Enter the number of years required to repay the mortgage. By default, this calculator assumes a 30-year mortgage, since that’s the most common term for a home loan in America. Other standard mortgage terms include 15 years, 20 years and 40 years; adjust this number as appropriate for the offer you’re evaluating. All other factors being the same, longer mortgage terms mean lower monthly payments, but they also mean significantly greater interest costs over the life of the loan.\n*   **Interest Rate**: Enter the interest rate for the loan you’re considering. Make sure to enter the interest rate, not the APR (annual percentage rate). These figures can be similar, but the APR reflects interest charges plus additional financing costs such as fees and mortgage insurance (more below). Enter only the interest rate here.\n### Advanced Options\n*   **Property Tax (annual)**: Property taxes vary according to where you live and depend on the assessed value of the home as determined by local taxing authorities. It’s common for lenders to roll your property taxes into your mortgage payments (though it’s not always required). The lender uses the collected payments to pay your taxes each year on your behalf. If that’s applicable to your loan, you can enter an approximate annual tax bill in this field.\n*   **Homeowners Insurance (annual)**: Because the mortgage lender holds title to your home until the mortgage is paid off, and reserves the right to seize and sell the property if you fail to repay the loan, the lender typically insists that you maintain sufficient fire and casualty insurance on the property to restore it to its full market value in case of fire, flooding or other disasters. To that end, property insurance premiums are typically added to the monthly mortgage payment. Adding annual property insurance costs here will mean insurance costs are reflected in the monthly payments generated by the calculator.\n*   **Mortgage Insurance**: If you make a down payment of less than 20% of the home value when you take out the mortgage, your lender will require you to pay for mortgage insurance to offset the costs they’ll incur if you fail to repay your loan. Mortgage insurance pricing is typically expressed as a percentage of the total home price, and typically range from 0.5% to 2% of the loan amount. If you’ll be paying for this, enter its cost in points. The calculator accepts any entry of 3 or less. The calculator will use this cost to factor mortgage insurance costs into the monthly payment.\n    If mortgage insurance is required for your mortgage, you may be able to have it removed once you’ve paid off enough of the loan to have 20% equity in the property, which will lower your monthly payment. Leaving this calculator field untouched or setting its value at zero will show you what your monthly payment would be without this cost.\n*   **Monthly HOA**: If the home you’re buying is part of a homeowners association (HOA), you’ll be expected to pay regular fees or dues to cover services and amenities provided by the association. These can include community clubhouses, pools, gyms and sports facilities, and services such as security patrols, landscaping and road maintenance. Those costs are often folded into monthly mortgage payments. Add monthly HOA charges here to have them reflected in your monthly payment calculation.\n### Calculated Results\nAfter you’ve filled in all applicable fields, press the Calculate button and you’ll be shown a results box with two tabs, marked Payment Summary and Payment Schedule.\n*   **Payment Summary**: The Payment Summary tab, which displays by default, shows you your calculated monthly payment, plus the total amounts you’ll pay in principal and interest, property taxes and homeowners insurance (at current rates), and homeowner association fees over the course of the loan.\n*   **Payment Schedule**: The Payment Schedule shows you the breakdown of principal and interest on every monthly payment, and reflects the process known as amortization, by which you pay significantly more toward interest than the principal balance in early loan installments, and gradually shift to more principal and less interest over the life of the loan.\nIf you must pay for mortgage insurance, you can use the Payment Schedule to estimate when you might be able to have it removed from the loan. Look in the Total Principal Paid column for the first month in which the listed figure exceeds 20% of the total home price. If you put 10% down, that’ll likely be about 12 years into a 30-year mortgage.\nYou can print the contents of either the Payment Summary or Payment Schedule tabs to save for comparison purposes if you’re running the numbers on several loan offers.\nHow Much Mortgage Can I Afford With My Salary?\n----------------------------------------------\nWhen a mortgage lender is deciding how much it will lend you (or if it will lend to you), it considers your monthly income and, more important, how large a percentage of it you put toward debt payments. The percentage of your monthly pretax income used to pay debt is called debt-to-income ratio (DTI), and from a lender’s standpoint, the lower your DTI ratio is, the better. The calculations can be somewhat complex, but many mortgage lenders decline to issue loans that raise the borrower’s DTI ratio to more than 36%; and under federal home-lending guidelines, a loan must not cause the borrower’s DTI ratio to exceed 43%. This will give you a good idea of how much mortgage you can afford.\nWhat Credit Score Do I Need to Buy a House?\n-------------------------------------------\nCredit scores do not factor into the mortgage calculator directly, but they have a major influence on the interest rate charged on your loan. Credit scores are designed to predict your likelihood of defaulting on a loan, or going 90 days without making a payment. People with lower credit scores are statistically more likely to default than those with higher credit scores. A widespread lending industry practice known as risk-based pricing typically assigns higher interest rates to loan applicants with lower credit scores and reserves the lowest (most affordable) rates for applicants with high credit scores.\nLenders make their own determinations, based on prevailing interest rates and their own lending strategies, when deciding which credit scores ranges they will assign which interest rates. Because each lender’s approach is different, it’s prudent to apply to multiple lenders when seeking a mortgage, because some may offer you a lower interest rate than others.\nEach lender typically requires a minimum credit score in order to consider a mortgage application. If your score falls below a lender’s minimum threshold, they can deny your application. It’s important to check your credit three to six months before you plan to apply for a mortgage to determine whether you should take some time to make improvements first. You can check your credit score and report for free from Experian to see where you stand and what measures you may be able to take, such as paying down credit card balances or bringing any past-due accounts current, before seeking a mortgage.\nHow Much Interest Will I Pay on a Mortgage?\n-------------------------------------------\nYou can use the Experian mortgage calculator to determine how much interest you can expect to pay on a loan for a specific amount, on a loan with a known repayment term and a set interest rate. In general, the amount of interest you pay will depend on the following:\n*   **The total cost of the house**: The more expensive the house, the more sizable loan you’ll need.\n*   **The size of your down payment**: The larger your down payment, as a percentage of the total home cost, the less money you’ll have to borrow in the form of a mortgage.\n*   **The loan term**: All else being equal, a longer loan term will mean smaller monthly payments, but more interest paid over the life of the loan.\n*   **The interest rate**: The higher the interest rate, the more you’ll spend in total interest payment—and your mortgage interest rate is strongly influenced by your credit score. Lenders typically offer their lowest interest rates to applicants with very good to exceptional credit scores. While it may be possible to get a mortgage with a credit score as low as 500, the interest rates associated with that loan will likely be relatively steep.\n    If your mortgage is a fixed-rate loan, you can calculate the amount you’ll pay each month with certainty. If you get an adjustable-rate mortgage (ARM), you’ll be charged an introductory interest rate for a specified number of years (typically one, but sometimes three or five), and then the interest rate will change annually. (If you’re using the Experian Mortgage Calculator to price out an ARM, you’ll need to update the calculation annually to recalculate the total payments for the next 12 months, and then revisit the calculations again when you receive the rate for the following year.)\nCompare Mortgage Offers\n-----------------------\nYou can use the Experian Mortgage Calculator before and after you actually apply for mortgage loans. Enter the basic required data—Home Price, Down Payment, Term (in years) and Interest Rate—from mortgage ads or the pre-qualification widgets on lender websites to get a rough idea of how much you can afford to borrow, and to get a ballpark idea of what your monthly charges will be based on different interest rates and loan terms.\nOnce you have a specific home in mind, have submitted formal applications, and have received one or more loan offers, you can again plug in the details from each offer, plus details on property taxes, homeowner insurance and, if applicable, mortgage insurance charges and HOA fees. These details can help you compare the overall costs of different loan offers, and let you see which deal is the best for you. END