Working the Numbers

We are going to start off small with an easy calculation. Don't worry. You will do fine.

The Three Bears Worksheet

The three factors you need to figure what your monthly payment would be are:

1. The total loan amount (the selling price minus 10% for the down payment)
2. The interest rate you�ll pay on that total loan amount, and
3. The repayment term, or length of time you have to repay the loan

Write three words down in a column on your work sheet, just like this:

LOAN :
RATE :
TERM :

Pick a Repayment Term

How long are you going to take to repay?

Let�s say that you expect to get a standard 30-year fixed-rate mortgage. So, write "30" behind the word TERM on your worksheet.

Pick an Interest Rate

Another easy figure.

For our Example we�re going to assume that the interest rate is 8%. So, write 8% on your worksheet behind the word RATE.

To find the current interest rate on a 30-year fixed rate mortgage, look in the real estate section of your local newspaper or call a mortgage lender.

Pick a Price

Try to be realistic!

Since you're already interested in becoming a homeowner, you've probably been gazing wistfully at the real estate ads in newspapers or visited a couple of open houses. You have an approximate idea of selling prices of homes in your area. We'll use $90,000 as the selling price for the Example.

Figure the Total Loan Amount

Wait, we'll show you how...

To establish the total amount of your loan, first figure what amount is 10% of the selling price you've just selected. We'll consider that the amount you'll make as a down payment. In our case, the down payment amount would be $9,000 which means that the rounded-off total loan amount will be $80,000. Write that number on your worksheet behind the word LOAN.

Figure Your Ballpark Payment

This will give you a reference point.

So, in our example, our total loan amount is $80,000, which we'll borrow over 30 years, at a fixed rate of 8% per year.

Now multiply 80,000 by 8%. You get 6400, which will be a total annual interest amount. Divide that by 12 months and your monthly payment is just $533.

NOTE: When you look this up on a standard mortgage chart you'll find that the total principal and 8% interest payment will be $587. These are solid ballpark numbers you can use reliably to estimate monthly housing payments.

To figure out how much your loan will really cost you, use our calculator which determines how much house you can really afford. In the box asking for your APR, substitute the interest rate if an APR is not available. This will give you a good idea how much your loan will really cost you in the long run.

You should also look into our rent vs. buy calculator and learn how you can save a fortune in interest costs if you pre-pay your mortgage by making small extra monthly payments.

Ready to Move On?

That last task may have gotten you excited. Let's take a closer look at what those numbers mean.

Page 6 of 11