Getting into a new home can be difficult. From the moving of boxes, hauling furniture around, and even trying to organize a new house while you are still living out of the old one; everything you try to do can be a fairly difficult process. That all being said, it is even harder to get into a home if you don’t have a plan for the finances right off of the bat. In fact, you can’t even submit a bid unless you know what you can afford, and you shouldn’t start looking for a house unless you actually know your comfort level with respect to the amount of debt you need to pay. These are the most important components of a mortgage that you need to be aware of far before you go into a mortgage loan.
Understanding the Formula
A standard mortgage can be calculated using a basic time value of money formula. The assumptions of the model are very basic, and while you might not be able to fully love and appreciate the finances behind it, what you do need to know is simple. You start with a loan and you want to pay it off. In essence you could use a straight line payoff in order to figure out how much it will cost you to pay off the mortgage, then just divide the amount of each payment to get to the amount of time it will take to fully pay off the loan. That being said, the component of interest rears its head, and you have to account for not only making a dent in the principle of the loan that you owe, but you also have to pay off the interest amount each and every month as well.
To better understand the idea of a mortgage payment and how it works, it might be best to look into the Singapore mortgage calculator with PropertyGuru Singapore to see the specifics. That being said, as long as you are accounting for the interest on each and every payment, you can quickly see how the process works, as well as how much you need to pay along with how many payments you need to make for the loan to be over and for you to own the house yourself with a mortgage paid off and in full.
Overpayments Can Shorten the Loan
When you consider the mortgage calculator and know that you get a payment number, the thing you need to think of is that the payment number itself is simply what you would pay assuming all of the other assumptions. In other words, even if you have all fixed information locked in and you don’t change over your terms or the mortgage itself, then you should easily be able to see how an overpayment would work.
Think of the payment as the suggested amount you need to pay in order to pay off the mortgage in the thirty-year period (or whatever period you have chosen). That payment is the number that will get you there right on time. The funny thing is that the bank is counting on their money, so they won’t allow you to be late. But, if you were able to pay more up front in any given payment, then you could pay off the loan faster! When you make a payment then the first portion goes to pay off the interest you have accumulated since your last payment. Anything that is left over will be applied directly to the principle, and in doing so you reduce the loan according to the time value of money schedule that you already agreed to. Anything extra that comes in on top of the payment amount will act just like the portion of the payment after the taxes and will simply be applied to the principle as well. In short, you are paying more which goes to the principle amount of the loan and pays it off quicker. You save time on the back end in the form of years as well as save money because each interest payment is now lower.
Understanding the Interest Rate
While you don’t necessarily know what will happen with a balloon interest rate or a variable interest rate, if you are able to deal with a fixed interest rate then you could be in trouble. Many loans and financial products are designed to have interest rates that will be flexible so that if the market changes under certain circumstance the lender will be protected as well.
The key is simply to know the potential terms of the deal when you go to actually sign on the dotted line, because the last thing you want to do is have a manageable and acceptable interest rate suddenly jump up into an extremely high rate that you can no longer afford. So long as you actually understand your mortgage and what the specific rate is far in advance, then you will be able to control your finances better than if you had done otherwise and you also won’t be surprises down the line.
Your finances should be one of the top items to take care of on your list just because of how powerful and important finances are. Not only are they a cause of great stress when you don’t have them in place, but they can at the same time be something great that is going for you as long as you manage to keep them in check.