In the early stages of the home buying process, many clients will often ask me what the monthly payment will be based on a price of a particular property.
It is impossible to answer this question without knowing more about the situation:
- what is your credit score?
- what is the interest rate on the loan?
- how much money are you putting in as a down payment?
- what are the taxes on the property?
- how much are the association dues or condo fees?
- what type of loan program do you have?
Calculating the monthly payment needs to weigh in all these factors. This is best left for explanation by the mortgage professionals who can quickly feed in all these numbers into their financial calculators or computers which run through a series of complex formulas to determine the answer.
However, clients still want an answer. So here is a rule of thumb, simple formula that gives a ballpark estimate.
Assuming a 30 year fixed rate mortgage, and assuming a 6% interest rate, the monthly payment of principal and interest only (not including taxes, insurance and other fees) is equal to $6 per $1000 of loan per month.
Plugging a $300,000 loan into this formula, you would find that the monthly payment would be approximately $1800/month.
This formula will give you a general idea of your monthly payment. The interest rates will vary and you'll need to increase the amount based on that, but the math is easier to do in your head with the flat $6 rate. Then you need to add in the taxes and condo or association fees, as well as insurance.
While you should consult your mortgage lender to get a good faith estimate and a more accurate picture of how your payments will look under your actual mortgage program, you can use this simple formula as a guideline to determine a monthly payment that you'll be able to afford.
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