Calculate your mortgage to stay in the know!

Buying a home usually includes mortgage payments. While mortgages are an essential part of your home investment journey, it gets complicated to understand the process, especially if you're a first-time buyer. This is often where a mortgage calculator comes in handy. If you want to gauge your monthly mortgage payments at the touch of a button, letWizard’s Mortgage Calculator is the answer. The easy-to-use calculator helps you instantly evaluate your monthly mortgage payments based on the purchase price, down income, interest rate, and other expenses.

But before you use the calculator, here are a few things to know.

Types of mortgages:

The following are the different types of mortgage options available in the India

• Fixed-rate mortgage

• Variable-rate mortgage

• Capped mortgage

• Discounted rate mortgage

• Remortgage

• Offset mortgage

• Tailored Mortgage products

Understanding the fixed and variable rate:

Under a fixed-rate mortgage, the interest rate remains the same for a particular time, usually between 1-5 years. Once this period ends, the loan will move back to a reversion rate. Under a variable-rate mortgage, the interest rate is connected to a one, three, or six-month benchmark reference rate and a certain percentage added by the bank. The interest rate under a variable-rate mortgage can increase or decrease based on changes in the benchmark reference rate.

Understanding the flat rate and reducing rate:

There are two different ways of figuring out the interest on a mortgage: flat rate and reducing rate. The flat rate is calculated on the principal. It means the interest rate does not change for the entire loan term.

The reducing rate accounts for all the repayments made during the loan term and is calculated on the outstanding balance.

It is always advised to understand the difference between these rates and discuss them with your bank or mortgage broker before choosing a suitable option.

The basics of mortgage payments:

Principal Payment

The principal payment is typically the original amount owed to your lender. To estimate or calculate your principal, deduct your down payment from the house's final sale price. Here’s an example of how to calculate your principal amount;

If your home costs INR 50,00,000 with a 20% down payment, you'll pay INR 10,00,000 initially. Once you’ve paid the down payment, your lender will foot the rest of the bill, i.e., the remaining amount, which comes up to INR 40,00,000. This is your principal balance, the money you owe your lender.

Interest Payment

The interest payment is one of the essential parts of your mortgage payments. This is often what you pay your mortgage for lending you the cash. The standard practice for calculating the interest is based on the Annual Percentage Rate (APR). The APR is the interest amount you'll pay on your mortgage per annum.

Here’s an example of how to calculate the APR;

If you borrow INR 40,00,000 at an APR of 10%, your interest payment will come up to INR 400,000 per annum. Your interest rate directly impacts your mortgage payments, and if your interest rate is high, your mortgage payments will also increase.

Interest-only Mortgage

An interest-only mortgage is an option that permits borrowers to pay only the interest on a mortgage for a specified amount of time, as defined under the mortgage terms. This term could be between 5-10 years, after which the mortgage converts back to the principal and interest payments schedule.

The interest-only mortgages are typically based on the adjustable-rate mortgage (ARM), which means you’re required to pay only the interest amount at a fixed rate for a pre-defined number of years. Once this period ends, you'll need to repay the mortgage's principal and interest.

Understanding principal and interest and interest-only payments:

Mortgage Repayment:

Generally, when you take a mortgage loan, your repayment pays down some of the principal balance and the interest accrued. This is known as principal and interest repayment.

However, you may be able to choose to make interest-only payments for a specific period, so you’re only paying interest charges. This means your costs will be lower than principal and interest repayments during that period. Because you eventually have to repay the principal balance, this interest-only period is always limited.

You need to consider your financial situation to plan for the end of your interest-only period, when you switch to principal and interest repayments, as your repayment amount will be higher.

Differences between repayments:

Pros and cons of an interest-only mortgage:

Pros:

• Reduced monthly payments

• Increased cash flow and easy management of monthly expenditure

• Defer large payments to the future

Cons:

• No equity on the property

• Payments get significantly higher once principal gets included

• Could be difficult to manage monthly payments in case of sudden financial losses