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How to Afford More Home With Your Monthly Mortgage Payment
When buying a home there are a few factors that the bank looks at to figure out what you can afford for a monthly mortgage payment. They usually tell you a price of a home that you can afford instead of the monthly amount because it's much easier rather than confusing the average home buyer.
They look at your income and compare it to your monthly bills to figure out that you can afford say $1,500 per month for a new home. Then they look at the average current interest rate and use a mortgage calculator to figure out the amount of home you can afford. Finally, they look at the average monthly taxes of a home that size and subtract that to come up with your approved mortgage amount of say $170,000.
Now I'll break it down backwards so it's easier to understand. Use a mortgage calculator to see that a $170,000 mortgage loan at 5% interest is $912 per month and the average taxes on a home that size is about 400 per month. Add the 2 together and get $1,312 which is just under the $1,500 per month.
The number you want to consentrate on more is the $1,500 per month because you want to make the most of your money. The "throw away" money when buying a home is the interest in the mortgage payment, the taxes and the possible condo fee. So if you spend extra time finding a 5% interest rate instead of a 6% interest rate, a $200 condo fee instead of a $400 condo fee and $200 monthly taxes rather than $400 taxes you can transfer that into the amount of home you buy.
Option 1
$170,000 at 6% = $1,020
Monthly Taxes = $400
Monthly Condo Fee = $400
Total = $1,820
Principal paid in 5 years = $12,000 |
Option 2
$265,000 at 5% = $1,420
Monthly Taxes = $200
Monthly Condo Fee = $200
Total = $1,820
Principal paid in 5 years = $22,000 |
The graph above is slightly exaggerated in terms of saving $200 on the taxes and condo fee but it shows that you can afford a lot more home rather than paying the "throw away" money on taxes and interest every month.
Another option instead of buying more home would be to find a $170,000 home or condo with the lower interest rate and monthly taxes and get a personal loan with the rest of your borrowing power to put renovations into your new home. Buy nice furniture, get it painted and make a few more updates with the extra money you have.
Option 1
$170,000 at 6% = $1,020
Monthly Taxes = $400
Monthly Condo Fee = $400
Total = $1,820 |
Option 2
$170,000 at 5% = $912
Monthly Taxes = $200
Monthly Condo Fee = $200
Total = $1,312
Monthly Savings = $508 |
Personal Loan over 5 years at 13% interest
$455 per month |
Knowledge and the use of a mortgage calculator will save you thousands of dollars. | 
