Types of mortgage payments
The monthly mortgage payment consists of two parts: part of the main debt and interest accrued by the bank for using the loan.
Principal debt is the entire amount that the client borrowed from the bank to purchase real estate.
It is divided into the period of the mortgage and is returned in installments.
Accrued interest is a payment to the bank for the opportunity to use its money.
You can pay your debt and interest in different ways:
- pay interest first, and leave the repayment of the principal debt to a later date – such payment is called an annuity;
- first, pay the principal, and towards the end of the contract – the interest accrued on its balance – this is a differentiated type of payment.
Now banks rarely use differentiated payment, opting for annuity mortgage payments.
This is convenient for the client and the bank. The body of the loan decreases more slowly, and the amount of accrued interest is higher. mortgage
But interest is charged only on the balance of the debt and the amount decreases if you repay the loan ahead of schedule since,
in case of early repayment, the entire amount is used to pay off the principal debt.
Since many borrowers use maternity capital, military mortgages, change an apartment, covering part of the mortgage with money from the sale of previous real estate, they get the opportunity to save on interest.
Another plus of the annuity payment is that its size is fixed and does not change throughout the entire loan term. If the client repays part of the mortgage debt ahead of schedule, the payment schedule and the amount of the monthly payment are recalculated.
With a differentiated payment schedule, the principle of accruing interest is the same: on the balance of the principal debt, but the amounts of payments are different every month:
in the first half of the repayment period, the difference with an annuity for the same amount of total debt can reach 45–50%, depending on the rate and term lending.
The bank calculates the mortgage by taking into account the client’s income: the monthly payment should not exceed 40–60% of the client’s income. If the amount is higher, the loan amount will be reduced.
How to Calculate a Mortgage Loan
The mortgage is calculated using standard formulas in which you need to substitute the data that is relevant to you.
It is most convenient to perform calculations in an Excel spreadsheet or in special calculators – about them below.
One of the basic formulas for calculating a mortgage looks like this:
- X is the monthly mortgage payment we are trying to calculate.
- S is the total amount of the loan.
- P stands for the monthly rate on the loan (this is the annual interest rate divided by 12).
- M is the loan term in months.
This formula is suitable for finding out the number of monthly annuity payments.
To calculate differentiated payments, the formula in a simplified form will look a little different:
However, such an equation will correctly calculate only the very first installment, while for subsequent calculations you will have to use more complex formulas, taking into account the total amount of the principal debt on the mortgage,
and hence the interest accrued on it decreases every month. In order not to get confused in the calculations, it will be easier to use a mortgage calculator – for example, on the Raiffeisenbank website.
Using a mortgage calculator
The Mortgage Calculator is a handy way to calculate your approximate monthly mortgage payment without having to do complex math. For calculations, the calculator uses all the same standard formulas, just in a more readable form.
To calculate the approximate amount of the monthly fee, you must enter the following information in the calculator:
annual interest rate, if it is not set automatically
After filling in all the fields of the calculator, you will find out the approximate amount of monthly installments, the total amount of payments, and the amount of overpayment for interest.
In the calculator, you can also change all the parameters presented there in real-time – the term and amount of the loan, the size of the down payment, and the type of mortgage program. This allows you to choose conditions that will help determine the size of the loan and the total loan term, taking into account your income and the possible mortgage rate.
As an example, let’s calculate the approximate cost of a mortgage on an apartment in a new building, which costs 2,500,000 rubles. The client has 500,000 rubles. For a down payment, he plans to cover the remaining two million through a mortgage under the state support program. With a term of 10 years, we receive a monthly payment of 22,295 rubles.
If this amount of payments seems too large, the term can be increased – for example, up to 15 years, if the age of the borrower allows it. In this case, the amount of the contribution will be already 16,975 rubles.
When changing the calculation parameters, be guided by the rules and conditions of mortgage lending in your bank. Most standard mortgage programs have age restrictions – the age of the borrower at the time of repayment of the debt should usually not exceed 65 years.
The approximate calculation of the mortgage in the calculator is automatic and does not take into account individual discounts. They can be obtained by increasing the down payment or applying for one of the state support programs, as well as if you have a salary card from this bank. For a more accurate calculation, you can contact the specialists of a credit institution, they will also help to conclude a loan agreement under one of the programs presented at the bank.