After-tax investment return
The rate of return, after taxes, you could receive if you invested your closing costs and down payment instead of purchasing a home.
The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor’s 500® (S&P 500®) for the 10 years ending Dec. 31st, 2013, had an annual compounded rate of return of 7.3%, including reinvestment of dividends. From January 1970 through the end of 2013, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.6% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can’t be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that Separate Account investment funds and/or investment companies may charge.
Annual property taxes
The annual amount you expect to pay in property taxes. This amount is divided by 12 to determine the monthly property tax included in PITI.
Annual home insurance
The annual amount you expect to pay in homeowners’ insurance. This amount is divided by 12 to determine the monthly home owners’ insurance included in PITI.
Appraised value of home
If this plus any required adjustments is lower than the contract sales price, the appraised value is used to calculate the maximum mortgage instead of the contract sales price.
Association & maintenance fees
Any association fees you are required to pay per month with the ownership of this home. Also include any other maintenance costs you expect to incur with the ownership of this home that you are not paying while you continue to rent.
Borrower-paid closing costs
Any closing costs paid by the borrower. Closing costs paid by the borrower do not count toward the FHA required down payment.
Cash on hand
Cash you have for the down payment and closing costs.
Contract Sales Price
Actual price to be paid for the home. This does not include any closing costs paid by the borrower.
Expected inflation rate
This is what you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI). From 1925 through 2013 the CPI has a long-term average of 3.0% annually. Over the last 40 years highest CPI recorded was 13.5% in 1980. For 2013, the last full year available, the CPI was 1.7% annually as reported by the Minneapolis Federal Reserve. Inflation rate is used to adjust amounts subject to annual increases. These amounts include rent, insurance and tax payments.
Expected rate change
The annual adjustment you expect in your ARM. The range for this calculator is minus 3% to plus 3%. Use a negative value if you believe interest rates will decrease, a positive value if you believe they will increase.
FHA down payment required
Percentage of your contract sales price plus required adjustments that you are required to pay and not borrow. If the appraised value of your home is less than the sales price, the required down payment will be the appraised value plus required adjustments X the required percentage, plus the difference between the sales price and the appraised value. This is designed to require at least a small down payment from the purchaser. The minimum down payment percent is 3.5%.
Fixed Rate Mortgage
A fixed rate mortgage has the same interest rate and monthly payment throughout the term of the mortgage. The payment is calculated to pay off the mortgage balance at the end of the term. The most common terms are 15 years and 30 years.
Fully Amortizing ARM
This is the most common type of ARM. The monthly payment is calculated to pay off the entire mortgage balance at the end of the term. The term is typically 30 years. After any fixed interest rate period has passed, the interest rate and payment adjusts at the frequency specified. A Fully Amortizing ARM will also have a maximum rate that it will not exceed. Below is a list of the most common types of Fully Amortizing ARMs.
|Common Adjustable Rate Mortgages|
|ARM Type||Months Fixed|
|10/1 ARM||Fixed for 120 months, adjusts annually for the remaining term of the loan.|
|7/1 ARM||Fixed for 84 months, adjusts annually for the remaining term of the loan.|
|5/1 ARM||Fixed for 60 months, adjusts annually for the remaining term of the loan.|
|3/1 ARM||Fixed for 36 months, adjusts annually for the remaining term of the loan.|
Future sales commission
The percent of your home’s selling price you expect to pay to a broker or real estate agent when you sell your home.
Home appreciates at
Annual appreciation you expect in the home you are purchasing.
Home insurance rate
Your homeowner’s insurance rate. 0.5% for a $100,000 home equals $500 per year for homeowner’s insurance.
Total of principal, interest, taxes and insurance (PITI) and maintenance paid per month for your home. Insurance includes Principal Mortgage Insurance (PMI) and homeowner’s insurance.
Income tax rate
Your current marginal income tax rate. You can use the table below to assist you in estimating your Federal tax rate.
|Filing Status and Income Tax Rates 2014*|
|Tax Rate||Married Filing Jointly or Qualified Widow(er)||Single||Head of Household||Married Filing Separately|
|10%||$0 – $18,150||$0 – $9,075||$0 – $12,950||$0 – $9,075|
|15%||$18,150 – $73,800||$9,075 – $36,900||$12,950 – $49,400||$9,075 – $36,900|
|25%||$73,800 – $148,850||$36,900 – $89,350||$49,400 – $127,550||$36,900 – $74,425|
|28%||$148,850 – $226,850||$89,350 – $186,350||$127,550 – $206,600||$74,425 – $113,425|
|33%||$226,850 – $405,100||$186,350 – $405,100||$206,600 – $405,100||$113,425 – $202,550|
|35%||$405,100 – $457,600||$405,100 – $406,750||$405,100 – $432,200||$202,550 – $228,800|
|39.6%||over $457,600||over $406,750||over $432,200||over $228,800|
|*Caution: Do not use these tax rate schedules to figure 2013 taxes. Use only to figure 2014 estimates. Source: 2014 tax brackets http://www.irs.gov|
Initial principal payment
Total of principal paid per month on your mortgage.
Initial tax savings
The value of the tax deduction you receive on your mortgage’s interest and home’s property taxes. For example, if you have $900 in interest and $100 property taxes per month, the value of the tax deduction would be $250 (at a tax rate of 25%).
Interest Only ARM
An Interest Only ARM only requires monthly interest payments. Since you are not paying any principal, as you are with the other two types of mortgages described above, this can lower your monthly payment. However, since your mortgage’s principal balance is not decreased, you will have a balloon payment at the end of the mortgage’s term. Like a Fully Amortizing ARM, an Interest Only ARM will often have a period where the interest rate is fixed, and then it is adjusted annually. An Interest Only ARM will also have a maximum interest rate that it will not exceed. This calculator uses a maximum interest rate of 12%.
Annual interest rate for each mortgage type. Typically an ARM will have a lower interest rate than a fixed rate mortgage. The rate of an Interest Only ARM will vary by lender.
Interest rate cap
This is the maximum interest rate for this mortgage. The mortgage’s interest rate will never exceed the interest rate cap.
Loan origination rate
The percentage the lending institution charges for its origination fee. 1% for a $100,000 home equals $1,000.
Maximum principal and interest (PI)
This is your maximum monthly principal and interest payment. It is calculated by subtracting your monthly taxes and insurance from your monthly PITI payment. This calculator uses your maximum PI payment to determine the mortgage amount that you could qualify for.
Total monthly income from all sources. All income should be entered before taxes.
Monthly housing expenses
Your monthly housing expenses from the housing expenses worksheet. The items entered as housing expenses make up the taxes and insurance portion of your monthly PITI payment.
Your monthly liabilities from the liabilities worksheet. Your monthly liabilities are used to calculate your maximum PITI.
Monthly housing payment (PITI)
This is your total principal, interest, taxes and insurance (PITI) payment per month. This includes your principal, interest, real estate taxes, hazard insurance, association dues or fees and principal mortgage insurance (PMI). Maximum monthly payment (PITI) is calculated by taking the lower of these two calculations: 1. Monthly Income X 28% = monthly PITI 2. Monthly Income X 36% – Other loan payments = monthly PITI
Monthly principal and interest payment (PI) for the Fixed Rate Mortgage and the Fully Amortizing ARM. This is an interest only payment for an Interest Only ARM.
Monthly cost of Private Mortgage Insurance (PMI). For loans secured with less than 20% down, PMI is estimated at 0.5% of your loan balance each year.
Monthly rent payment
Amount you currently pay for rent per month.
Months rate fixed
This is the number of months the rate is fixed for an ARM. During this period the interest rate and the monthly payment will remain fixed. The rate will then adjust annually by the expected rate change.
Expected balance for your mortgage.
Net home price
Net selling price of your home after subtracting any sales commissions.
Net house payment
Your initial house payment minus the value of the tax deduction and principal payment.
Other closing costs
Estimate of all other closing costs for this loan. This should include filing fees, appraiser fees and any other miscellaneous fees paid.
The total number of points paid to reduce the interest rate of your mortgage. Each point costs 1% of your mortgage balance.
Prepaid expenses, points, non-financeable repairs/improvements, MIP, other items
Any other items required at closing that are not able to be financed into the mortgage. These items plus your down payment is your total cash required to close this mortgage.
Amount that will be prepaid on your mortgage. This amount will be applied to the mortgage principal balance, based on the prepayment type.
The frequency of prepayment. The options are none, monthly, yearly and one-time payment.
Price of home
Purchase price of the home you wish to buy.
Property tax rate
Your property tax rate. 1% for a $100,000 home equals $1,000 per year in property taxes.
Choose how the report will display your payment schedule. Annually will summarize payments and balances by year. Monthly will show every payment for the entire term.
This amount will decrease (or increase if negative amounts are entered) the contract sales price before calculating the required minimum down payment. A common required adjustment would be for gift funds that do not meet FHA requirements. Additionally, this would also include, seller paid financing fees over 3% of the sale price in seller paid closing costs, or any other financial inducements to by the seller.
Total amount of interest you will save by prepaying your mortgage.
Start interest rates at
The current interest rate you could receive on your mortgage. This is used as the starting point for displaying a range of interest rates and the resulting mortgage amount.
Start with payment
This is the payment number that your prepayments will begin with. For a one-time payment, this is the payment number that the single prepayment will be included in. All prepayments of principal are assumed to be received by your lender in time to be included in the following month’s interest calculation. If you choose to prepay with a one-time payment for payment number zero, the prepayment is assumed to happen before the first payment of the loan.
Term in years
The number of years over which you will repay this mortgage. The most common mortgage terms are 15 years and 30 years. Please note that for the Interest Only ARM you will have a balloon payment for the entire principal balance at the end of the loan term.
Total for down payment
Total funds remaining for down payment.
Total of all interest paid over the full term of the mortgage. This total interest amount assumes that there are no prepayments of principal.
Total of all monthly payments over the full term of the mortgage. This total payment amount assumes that there are no prepayments of principal.