Can you really afford that loan?
That amount will become part of your budget, a figure that will help you determine whether you can afford the loan or not.
Payment Calculator
From ourtools box we have a monthly loan payment calculator that can help you determine what your monthly payment will be. In the meantime, let’s take a look at the three primary components of a loan:
Amount of your loan — The amount of your loan is what you’ll borrow. This sounds simple, but sometimes it isn’t so. For example, if you purchase a $212,000 home and put $50,000 down, then you’ll finance $162,000, right? Well, yes, but if you add in closing costs, real estate taxes and other expenses, the amount you finance could be higher. Only calculate your cost with a final figure to determine what your loan amount will be.
Repayment months — Just how many months is that home mortgage for anyway? If you have a 30-year mortgage, then you’ll plug in 360 for the number of months. For a 20-year mortgage, that figure is 240. For a five-year new car loan, you’ll enter 60. Pretty easy, right? Yes, simply take your number of years and multiply it by 12 to get an accurate number.
Interest rate — A loan calculator works great if you have a fixed rate. Not so much if you have a variable rate because that future interest rate is not known. Still, if your home loan is for 4.5 percent, then you will plug in that number. If it is 4 percent for five years before adjustment, then plug in 4. You’ll have to recalculate the loan later on, but at least you’ll know what you have to pay for the short term.
Let’s Calculate!
With all three figures plugged in, you can then calculate your loan. That number should, down to the penny, tell you how much you’ll need to repay each month. You’ll then take that number and see how it fits with your budget. Add in homeowner’s insurance, real estate taxes and association fees separately, if applicable.
See Also — 10 Tips for Surviving Christmas Alone
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