Do you know how much your mortgage is or how to find out how large of a mortgage you can afford?
Whether you're buying a home for the first time or have experience purchasing multiple properties, it's helpful to use a mortgage calculator. Mortgage companies in Canada take several factors into account to determine how much you'll ultimately pay.
In this article, we provide all you need to know about using a mortgage calculator to determine your mortgage rate, including how it works, the terminology you should know, what factors determine how much you'll pay, additional mortgage options, and decreasing costs.
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What Is a Mortgage Payment?
A mortgage payment is the amount you will pay monthly to pay off the balance of your mortgage loan. The payment is the principal (amount of the loan) and the interest rate being charged for taking out the loan. If you have put down less than 20% of the cost of the home for your down payment, then your mortgage payment will also include the monthly cost for mortgage default insurance. This is also known as CMHC insurance.
Benefits of Using a Mortgage Payment Calculator
When purchasing a home is on the horizon, envisioning the remaining cost of your home after you’ve made your down payment seems pretty straightforward. However, the most important figure is going to be your repayment amount. Your mortgage payments are going to be deducted from your paycheque every month. A mortgage calculator will help you to know exactly what those payments are going to be. Property taxes and other fees may also be factored in your monthly fees.
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How the Mortgage Calculator Works
Regarding a mortgage calculator, Canadian mortgage companies consider multiple factors when determining your monthly payments and the total mortgage amount, including the initial loan amount, how much interest the mortgage company charges, and how long it will take to pay off the loan entirely.
A traditional mortgage calculator only determines possible costs. Your mortgage broker may offer a different rate than you expect, so it's critical to consider multiple figures to ensure you meet the payment requirements.
To put it simply, mortgage calculators take your home's total purchase cost and subtract the down payment amount to determine the principal loan amount. You'll also need to know the interest rate for each period. The calculator divides the annual rate by 12 for a year of payments and multiplies the number of years in the term with how many times you'll pay in a year to determine the monthly amount. Our mortgage calculator, on the other hand, is far more transparent in that you are able to input additional factors which help to bring you much closer to the actual amount you will be paying. You are able to enter:
- Your desired payment frequency
- Your down payment
- You amortization period
- Interest rate
- Mortgage term
Another great feature of using our mortgage calculator is that you are able to plug in 2 different scenarios at a time. When determining your mortgage payment, a side by side comparison is an excellent way to plan for the best financial course of action.
After using a mortgage calculator, you should have a sense of how much you'll pay each month.
You can input your information into the mortgage calculator to figure out your monthly costs. Information you'll need to know include the:
- Principal mortgage amount
- Interest rate for each payment period
- Total number of payments for the amortization period
Important Mortgage-Related Terms to Understand
The following values are what you enter into the mortgage calculator to determine how much you'll pay monthly:
- Amortization period: Amortization is the length of time you have to repay your mortgage. Longer amortization periods may incur higher monthly payments. For example, the longest amortization period you can have is 25 years if your down payment is less than 20% of your home's cost.
- Payment frequency: The payment frequency is how many times you'll pay your mortgage in a year. The mortgage calculator calculates the total number of payments in the entire payment scheme. If you have a shorter amortization period, higher, more frequent payments will help you pay off the mortgage and interest faster.
- Down Payment: A down payment is the amount of funds you will be putting down towards the purchase price of the home. As an example, if you are purchasing a home worth $800,000 and you have $160,000 to put down, your down payment is $160,000. It's very important to note however, that you should not utilize the entire $160,000. There are other fees to consider such as closing costs (real estate lawyers, land transfer tax, etc...) that must be accounted for.
- Principal amount: The initial borrow amount is the principal figure. This amount adds to your mortgage costs if you also get mortgage protection insurance.
- Property taxes: Property taxes depend on your home's location and value. If your down payment is less than 20% of your home's cost, you'll pay taxes through a bank or loan facilitator.
- Mortgage default insurance: This insurance protects you from defaulting if your down payment is less than 20% of your home's total cost. It adds to your principal amount.
- Mortgage interest rate: Interest is what you pay the mortgage provider for facilitating the borrowing process. It's possible to get a lower interest rate depending on your credit score or loan type.
By understanding features like amortization, down payment, payment frequency, and the principal amount of your mortgage, you can best understand mortgage calculator capabilities and what to expect before getting a mortgage.
Factors that Determine Your Total Mortgage Payment
In addition to using a mortgage calculator in Canada, several factors determine your total mortgage amount. You must have the financial means to afford the mortgage.
Mortgage brokers want to make sure you have the financial stability to afford your mortgage over the amortization period. Companies use the following information to determine how much you can afford to pay total:
- Credit score: A high credit score indicates mortgage providers can trust you to pay back the mortgage amount.
- Down payment: The lower your down payment, the more money you'll pay over the amortization period.
- Mortgage insurance: Additional expenses like insurance to protect your mortgage payments add to your total costs and contribute to whether providers lend you money.
- Inflation: Inflation increases home prices, interest rates, and more, so providers also base the total mortgage amount on the current level of inflation.
- Provider risk: Some providers are willing to risk lending large amounts, while others ask for specific criteria before agreeing to lend money.
- Interest rate: Fixed interest rates remain the same throughout your entire amortization period, while variable interest rates fluctuate as mortgage payments stay the same monthly. Other hybrid options combine these two types to protect your rates if they rise or fall.
After Calculating Your Mortgage
A mortgage calculator in Canada helps you determine your future mortgage costs, but you need to meet specific eligibility requirements.
By filling out quote forms from providers, you can get pre-approved before shopping for a mortgage. Pre-approval amounts aren't final, so your mortgage loan could vary. With added interest, prices could be different monthly or have fixed rates.
Mortgage Lenders - How to Choose One
Finding a mortgage lender has been described as being the most time consuming task of shopping for your new home. With all of the big banks and financial companies being in the lending business, and thousands of private lenders to choose from, how do you know which one to work with? You don’t have to know the answer to that question. Insurdinary’s partnership with Homewise has already done the heavy legwork for you. Canada’s top lenders and mortgage brokers now live on our website, the rates you see listed are updated daily directly from the lenders themselves.
Some mortgages allow you to pay off the full amount early, while others charge an excess fee for early payment. Choose a closed mortgage if you want to stick to the longer, fixed payment schedule, or go for an open mortgage for more payment flexibility.
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Decreasing Expenses with a Mortgage Calculator
Not all potential homebuyers can afford a mortgage. Calculate your mortgage costs and see whether you can afford them. If you want a lower price, a mortgage calculator in Canada can also help you decrease your principal amount.
You can lower mortgage costs by:
- Improving your credit score
- Making a bigger down payment
- Increasing your amortization period
- Getting another provider's rate
The most trustworthy borrowers get the best rates, so resolving credit problems by maintaining a regular payment schedule will increase your score and help reduce costs.
Additional Options for Your Mortgage
In addition to calculating your mortgage, a mortgage calculator Canada mortgage providers offer can also help you consider additional features. Some companies require you to purchase a specific type of protection to avoid fraud or keep your home, in the event you become injured or unemployed.
Title insurance protects you from title fraud when selling or mortgaging your home, while disability or critical illness coverage helps you pay your mortgage despite disabling conditions or injury. Mortgage calculators can help you figure out these additional costs and how they impact your payment schedule.
Can You Afford Your Dream Home?
This article answers that and more.View Article
Mortgage Payment Calculator - The Takeaway
At Insurdinary, our mortgage rates are powered by Homewise, a Canadian mortgage broker that partners with top mortgage companies across the country. This partnership allows us to provide you with the best calculating tools for your mortgage, as well as connecting you with the best rates from Canada’s top lenders. Learn the ins and outs of your budget and homeownership goals and align yourself with the best plan, on Insurdinary.ca.
No matter the cost of the mortgage or insurance you need, we'll help you calculate and locate the top rates for your future or current home.
Being in the market for a new home is an exciting time and in order to have reached that time in your life, financial organization is key. Another important aspect of financial organization however, is ensuring all of your insurance products are in order. Insurance after all, is what will protect your family and their home in the event of the unthinkable. Ready to discuss life insurance with us? Give us a call. One of our experienced agents would be happy to speak with you. Prefer an exclusively digital experience? We can do that, too. Visit our online life insurance quoter. Our self assessment tool helps you determine exactly how much life insurance you should apply for.