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Math has always come naturally to me which has allowed me to spot good and bad mortgage deals from a mile away. It’s also given me an advantage when working with customers in the mortgage and real estate business over the years.
First time home buyers may become confused and overwhelmed when applying for a mortgage loan due to all of the calculations that should be reviewed and explained throughout the loan application and disclosure process.
I always recommend borrowers use a mortgage calculator with taxes. This will allow them to figure their principal, interest, taxes and insurance payment. This total payment is also known as a PITI payment. Some online calculators will even factor in the mortgage insurance too.
A trick I learned early on to make applicants feel at ease is to get out a note pad and write down the important closing cost figures and monthly payment calculations as they are explained to the customer. This helps them better understand their mortgage rate quote and closing costs. Many borrowers will ask to take the notes with them along with their disclosure forms.
Time value of money calculations are complicated, most people use computers or financial calculators to figure monthly payments. In the old days brokers carried printed rate table charts with them to quote monthly mortgage payments. A simple way to figure monthly interest on the fly is to multiply the loan amount times the interest rate and then divide by twelve. For example 100,000 x .12 (12%) is 12,000. This is the annual interest on a 12% loan for $100,000. Dividing 12,000 by 12 months gives you a monthly interest payment of $1,000.
Over the years I think many individual’s math skills have declined due to the abundance of personal electronics. Imagine what would happen if we had to calculate everything longhand.