This calculator that will calculate the length of the loan and interest costs given your affordable monthly payment range.
Payment Range Calculations Understood
When estimating the life term of your future loan, it is best to have a good idea of the very base and very maximum monthly output your wallet can handle. You can use this calculator to determine an appropriate type of loan for you after taking into account the total amount you will need to borrow, the APR you expect to receive, and the minimum and maximum of your monthly payment range. The tool will then spit out two different scenarios for your consideration. The first is based on the loan attached to the minimum amount you can afford to shell out every month, which will necessarily take longer and consist of smaller payments over an extended period of time under the given annual interest rate. The second will take into account the maximum dollar amount you can afford to give up every month. This loan situation will, of course, be of a shorter term life and have slightly larger associated payments in accordance with your capabilities. Finally, the calculator shows you the difference in these two possibilities, so that you will be able to carefully compare and contrast your options and see via the numbers how your loan term affects how many total principal and interest mortgage payments you make.
How to Determine Your Monthly Payment Ranges
You can get a good idea of your monthly minimum payment range by using the income to payment ratio target figure of 28%. In other words, your monthly mortgage cost (principal, interest, taxes and insurance in total) should never exceed more than 28% of your total monthly salary. When you take other distinct debt from previous sources into account, this figure becomes the debt to income ratio of 36%. Essentially, this indicates that your mortgage payment in addition to your standing debt should never go over 36% of your monthly income. So, with these guidelines in mind, we can estimate our minimum and maximum monthly mortgage payments by calculating approximately 28% of our income. This figure will be the maximum possible monthly payment. However, if the mortgage will be your only ongoing debt to pay and you have no other car or credit card payments, you can increase this percentage to 36%, and calculate accordingly. The minimum amount to fix as your monthly payment baseline can fall anywhere below that where you feel financially comfortable placing it.
Let's take a look at some sample numbers in the calculator tool. Take a $50,000 principal loan with a standard fixed 6% APR. Let's fix our minimum and maximum range numbers at $400 per month and $500 per month, respectively. This means that we would be able to dedicate at least $400 of our monthly income to the mortgage bill, but no more than $500. If we go with our minimum payment, we find that a loan with a 16.4 year life would fit well and result in a total interest owed of $28,662. On the other hand, our maximum payment will shorten our loan term to 11.6 years and a total interest of $19,487. This difference of $9,174 and 4.8 years is what you must be prepared to pay when only paying out the minimum monthly payment within your personal range.