## Real Estate Finance 101: How to Calculate Your Mortgage Payment

When making a real estate purchase, one of the largest factors that will determine whether or not you purchase a property is the amount of the monthly mortgage payment. Oddly enough, many buyers do not know exactly how to calculate the amount of the mortgage.

While your real estate agent and/or lender should be able to provide an estimate of the monthly mortgage payment, it is a good idea for you to know how those figures are calculated. This article breaks down the components of the mortgage payment, the typical amount of each component, and how the information can be obtained and determined.

The Components of the Mortgage Payment

Most websites that offer a mortgage payment calculator only calculate the principal and interest portions of the payment. In fact, the entire mortgage payment is typically comprised of principal, interest, taxes, and insurance, commonly referred to as PITI.

To calculate the amount of your mortgage, you will need to know:

The principal amount of the loan;

The interest rate of the loan;

The term of the loan (the number of months for your mortgage);

The annual amount of property taxes;

The annual premium for hazard insurance;

The annual premium for mortgage insurance (if applicable).

Let’s say that you have a 30-year, \$200,000 mortgage at an interest rate of 6%. Annual property taxes are \$3,000 and the annual hazard insurance premium is \$500. The annual mortgage insurance premium is \$1,000. In word form, the monthly mortgage payment is calculated by multiplying the present value of the loan principal amount by the monthly interest rate (6% divided by 12 months) for a term of 360 months (30 years). This results in the principal and interest portion of the payment. To easily calculate the payment, I usually use Microsoft’s Excel program and use the “PMT” (payment) formula.

Once you have the principal and interest portions of your payment, add the following to the payment: monthly amount due for property taxes, monthly amount due for hazard insurance, and monthly amount due for mortgage insurance. All monthly amounts can be calculated by dividing the annual amounts by 12. This makes up your complete mortgage payment.

The principal amount is the actual portion of the loan that is being repaid, while interest is the fee you pay to the lender for the use of their money. The interest on a mortgage is usually expressed as an annual percentage of the principal. It is important to note that the amount of interest is usually the largest part of the mortgage payment. The amount of interest paid is usually reduced as the loan amortizes. More of your payment then goes towards the principal amount of the loan.

The taxes that are included in your mortgage payment are the property taxes that are due annually, as assessed by your county of residence, while hazard insurance is the protection on your home in case of random “hazards” (i.e. break-ins, fire, earthquakes, etc). Depending on where your home is located, you may also be required to obtain flood insurance for your property (this is usually separate from the standard hazard insurance policy). Additional insurance that could be required as part of your monthly mortgage payment is private mortgage insurance (PMI) or a mortgage insurance premium (MIP). This insurance is usually required if the loan-to-value ratio for your home loan is more than 80%.

Please note that some people will tell you that taxes and hazard insurance are optional portions of the mortgage payment. This is true with some lenders. In this case, you would just pay principal and interest (and mortgage insurance, if required) to them, but you are responsible for paying your own taxes and hazard insurance when they are due. However, most lenders will require you to pay a portion of taxes and insurance monthly as part of your mortgage payment. This is because the lender wants to ensure these items are paid on time in order to mitigate the risk to their asset (your home that you have pledged as collateral for the funds that you’ve borrowed).

When taxes and insurance are included as part of your monthly mortgage payment, the lender places these payments in an escrow account and disburses the funds as the bills are due. This is advantageous to the borrower since you won’t have to worry about coming up with the funds at the end of the year to pay your property taxes and hazard insurance-especially if you are not as disciplined to set aside the funds yourself throughout the year.

### How to Obtain the Information to Determine Your Monthly Mortgage

The principal and interest amounts for your loan are pretty easy to find. This information is included in your loan documents if you have already secured a loan and know the interest rate of the loan.

The amount of your property taxes can be estimated by looking at the last tax bill. This is always an estimate, as the tax value of your property can be adjusted annually, depending on the state and county in which you live. The rate at which your property is taxed can also change; therefore, the last tax bill is a good indicator of what to expect going forward.

Hazard insurance is determined by your insurance company, and depends on various factors including the age of the home, whether or not you have a security system, and the proximity of your home to a fire hydrant, just to name a few. Like car insurance, it pays to shop around for hazard insurance. Usually, the company that you have your car insured with will offer a discount for your home insurance.

Mortgage insurance is determined by the insurer and usually varies, depending upon whether you have a conventional loan (which is insured by a private company), or a loan backed by the Federal Housing Association (FHA) or Veterans Association (VA), for FHA and VA loans, respectively. This factor of the mortgage payment is the least readily determinable in advance, but the annual premium should not amount to more than 0.75% of the principal amount of your mortgage.

## Real Estate Bust: What the #\$!@&* Happened?

I recently sought out Countrywide Home Loans with the intent of attaining the necessary capital to purchase a base of operations. I completed a one page document of basic inquiries as follows: Income: A Lot. Employment History: Experienced. Ability to Repay: Dunno. Reference: Momma.

The loan officer verified my information by placing a telephone call to my mother who indicated that I had been a good boy and was deserving of the money. Shortly thereafter, \$5 Million was placed into my account. I was to be held responsible only for meeting the interest payments over the time frame specified by the fine print. At this point; I would be forced to begin paying down principal and my interest rate would jump to LIBOR plus 15%. ‘Details, Details,’ grins the Cheshire-Cat mortgage broker. I could always dump the property on some sucker-ahem home buyer before the teaser rate expiration.

Days before hosting the Housewarming Party at my luxurious Biscayne Bay condominium, confusion sets in pertaining to who actually held the mortgage loan and to where I should remit interest payments. The loan had been combined with thousands of other mortgages, credit card debt, auto loans, layaway plans, and the \$5 owed to your Uncle Frank. This pool of debt was separated into collateralized debt obligations; [CDO] classifications based upon risk and distributed amongst hedge funds, investment banks, mutual funds, and the school board of Lorain, OH. These units were to be held off the books; carried by structured investment vehicles [SIV] that I was told didn’t really exist. Of course, Ratings agencies employed a cosign-tangent-alpha-square root-divisor algorithm to award AAA platinum status to all debt issued in the United States since 1958. I was assured that in the event of disaster the U.S. Treasury and several banks would put together a ‘Big Fund’ called MLEC to purchase BBB CDOs from the SIVs. Got That?

The mood at my Housewarming Party became dour upon the entrance of Bad News Fred, a man who plagued the festivities with sob stories and incessant whining. Over the course of eight years, Fred’s wife had left him to be with a ‘real’ man; Fred dropped out of trade school because the course hours interfered with Happy Hour; and poor Fred was terminated from his position of Turnpike Tollbooth operator due to overall negligence. Indeed, The Republican Party is to blame!

I shouldered the responsibility, traveling to Washington to meet the leader of this Republican Party. I was informed that a Mr. George Bush had not been to work in weeks and that I should book travel to Crawford, TX. Upon arrival, my crisp interrogation was greeted with blank stares and smirks by this gentleman. We spent the weekend fishing, golfing, and shooting off guns-accomplishing nothing. Mr. Bush scribbled the words ‘Rudy – New York,’ and placed a phone call to this person.

The telephone prompted me to submit all personal telephone records, love letters, financial documents, diaries, and embarrassing photographs to the United States Government. Failure to do so would lead to my arrest as a terrorist. The phone call fell into a pre recorded stump speech by Rudy Giuliani: noun-verb- SEPTEMBER 11th. Next, surprise visitors Al Gore, Bill and Hillary arrived at the ranch to play a game of charades with Dubya. I found the interaction pleasant, as all partygoers began to smile and nod approval of every word that I said. Mr. Gore chartered a jet for us back East after mumbling about the environment.

Our entourage became witness to an intense shouting match featuring Jim Cramer, Alan Greenspan, and Ben Bernanke. Cramer began to yelp, cavort, and scream that I had ‘no idea’ pertaining to anything in life. Greenspan delved into quoting Shakespeare; while Bernanke chose to ignore the raucous and retired to his library. Shortly thereafter, money was airlifted and dropped from the sky from Blackhawk aircraft.

I giddily grabbed the cash-telephoning Countrywide that I may be able to afford my home. The bank agreed to drop my interest rate to 0% and I was ordered to make payments at my ‘earliest convenience.’

## How Can We End the Real Estate Crisis?

The Real Estate Crisis

References: PBS News Hour and Wall Street. (I am not affiliated with PBS nor either PBS program.)

The Real Estate Crisis is yet another area where I am not hearing any real solutions from either political party. Tax cuts and incentives won’t resolve the crisis. Government intervention will not resolve the crisis. Home foreclosures only exacerbate the crisis by lowering house prices. Restructuring Fanny Mae and Freddy Mac may have long term benefits, but in the short term may have no effect on the current crisis.

In order to illustrate what I am talking about, let’s create an imaginary person named Mr X. Mr X is a successful business executive earning millions of dollars per year. He bought his current home for 150 million dollars. He took out a 120 million dollar mortgage at a 5% interest rate. Everything was fine when he bought it. He could easily afford the mortgage payments.

But then, other foreclosures forced the value of his home down to \$400,000. The principal of the mortgage was still very close to 120 million dollars because most of his payments during the first several years covered the interest and didn’t significantly reduce the principal.

Mr X has two choices. Refinancing may not be an option because the principle of the mortgage is well above the actual value of the house and the outlook for rising home prices is poor. Mr X could continue dumping his money into mortgage payments. But this option is comparable to flushing money down the toilet. Especially since he could abandon his home, rent an apartment and save lots of money by defaulting on the mortgage. Furthermore, the savings could be used to send his children to college.

So, putting ethics aside, Mr X makes a decision to stop paying his mortgage. The bank ends up taking the loss when they foreclose and try to sell the house. There is no way the bank could win.

Experiences like this make the bank less willing to give out mortgages. Furthermore, people hesitate to buy homes because of the concern that they will end up in the same situation as Mr X. It all amounts to a downward spiral of the real estate market. This concern will not fade for years after the declining home prices turn around. People will be keenly aware that they may end up in a situation comparable to Mr X’s position.

The question is: How do we turn it around?

Restructure Freddie and Fanny Mae?

Provide insurance against mortgage defaults? Who will provide that insurance and how much will it cost?

Provide government subsidized mortgages?

Provide tax credits for people who end up in Mr X’s position?

Provide a way for banks to lower the interest rate on an existing mortgage rather than having the home owner try to refinance with a new mortgage?

Government grants for housing market?

A combination of any of the above?

The most promising answer is bank insurance against mortgage defaults. But it doesn’t resolve the concerns of the current family thinking about buying a home.

## Chicago’s New Eastside Offers Prestigious Real Estate

The New Eastside in Chicago is the location to a luxury building at 450 East Waterside. Located close to the Chicago River, this building boasts views of magnificent Lake Michigan and the Chicago skyline. Units available for sale in this building offer hardwood floors, custom mill work on the ceilings, terraces, a custom library and spa.

In addition, appliances include oven/range, oven-double, microwave, dishwasher, garbage disposal and washer and dryer. The assessment includes air conditioning, heat, parking, gas, common insurance, exercise facilities, exterior maintenance, snow removal and scavenger services. Bounded by Lake Shore Drive and Michigan Avenue, The New East Side is also home to the Aon Center, Swissotel Chicago, One Prudential Plaza and Blue Cross-Blue Shield Tower. In addition, the Fairmont Hotel, the General Motors Building and North Harbor Tower call New Eastside home.

The area is undergoing major renovations and new development projects, making it an exciting time to live in this booming area.

## Boerum Hill Spearheading a Resurgence of Real Estate in Downtown Brooklyn

The Brooklyn Eagle reported on the recent sale of The Boerum Hill building (179 Smith St.) which went for a reported \$1.425 million dollars.

The property includes street level retail space that is currently occupied by a bar, in addition to two “extensively renovated,” unoccupied apartments on the second and third floors.

The transaction, the Eagle reports, was handled by Stephen Palmese of Massey Knakal Realty, who is quoted as saying that while the sale price actually represents a 5% drop in prices since the 2006-07 peek, it is significant because it represents only a 5% drop, and in actuality “symbolizes the resurgence of real estate in Downtown Brooklyn.”

No plans are reported for the building beyond continuing with the current retailer.

Sources

http://www.brooklyneagle.com/categories/category.php?category_id=5 id;=38827

## Boerum Hill Real Estate Resurgence

The sale of the building at 179 Smith St., between Warren and Wyckoff streets, represents resurgence in Brooklyn real estate, claims a Brooklyn Eagle report.

This statement may be hiking the house a little bit.

Granted the building sold for \$530 per square foot for a total price of \$1.4 million. “This sale is significant, not only for Boerum Hill property owners, but for the real estate market in general because it reflects only a 5 percent reduction from peek-pricing in 2006/2007,” reports the Eagle.

The over-a-mill price for a building with only one storefront, downstairs, and two apartments, upstairs, isn’t bad.

However, it may not represent resurgence just yet.

There will, inevitably, be real estate resurgence in Boerum Hill if downtown’s revitalization is successful. Much money is being spent on the adage, “If you build it, they will come.” Let’s hope it’s true and they do.

Till next time, Boerum Hill.

Source:

Linda Collins, “Buildings in Boerum Hill, Bed-Stuy Change Hands,” The Brooklyn Eagle

## Where to Find Real Estate Listings in Northwest Indiana

Right now with the economy tanking, and housing prices in the dumps, it’s a great time for buyers to pick up some great deals. But where do you find them? If you want an overall view of what’s on the market, you can’t have an agent show you every house, and booklets become quickly out of date because they’re not able to instantly update themselves. No the best place to find real estate listings is on the web. Here are the best websites to find real estate listings in Northwest Indiana.

Realtor.com

This is a great website for getting up to date real estate listings. The website gives you the option of searching either by zip code, city and state, or by the map. Then you plug in a couple pieces of information, such as number of beds and baths, and your price range. Then the site gives you a list of homes in which you can view all kinds of information such as pictures, prices, addresses, sizes in square feet, descriptions, and maps.

Craigslist.com

This is another good website for real estate listings in Northwest Indiana. Again, just plug in your zip and your price range and list of corresponding homes will pop up. Or, you can forgo the information and just browse the list of homes in order of the date that they were listed. There is also information and pictures on each home, although not as many as on realtor.com. However, unlike realtor.com, you can get listings of homes that are for sale by owner.

Gniarmls.com

(Greater Northwest Indiana Association of Realtors Multiple Listing Service)

This website is head and shoulders above the rest. It is the only site out there that is specifically tailored for the Northwest Indiana region. As with most real estate listing sites, you enter your wants and needs in a house, and then you get a list of homes based on your criteria. The great thing about this site is that you can get very detailed with your criteria. You can search through subjects such as lot size, structure size, year built, address, and property status. You can even narrow it down to what subdivision to look for homes in. One last feature of this site that I love is the ability to look for other kinds of real estate other than homes, such as farms, commercial property, vacant land, and multi unit properties. Happy hunting!

## Selling Your Own Home to Save Real Estate Fee can be Risky

Primarily, sellers attempt to sell their own home because they want to save the real estate fee. Many have done so- some successfully and some regretfully. However, the less experienced the seller is with such a process, the greater the risks.

### Contract

Sellers have to remember that a written contract for the sale of a property is binding. The clauses contained therein can have serious implications. Awareness and knowledge are critical. There are buyers who like to target For Sale by Owners (FSBO) in order to get the best deal possible. These buyers are often more experienced than the seller and can skew the contract to their benefit.

### Selling Price

Unless the seller has access to current market information, pricing may be off the mark. If it is too low, there will be a loss and if it is too high there may not be a sale. Nevertheless, the seller selects what he perceives to be a market value price and hopes to make a gain because he doesn’t have to pay out a real estate fee.

Sounds like a good plan. Then a buyer comes along and makes an offer that is lower than the asking price BECAUSE the sale will not incur a real estate fee!

Both parties are trying to save the real estate fee. Often the seller gets short changed.

When selling a home, exposure is a must. Advertising is required. This generally consists of a lawn sign, some newspaper ads and, especially, internet exposure. More and more buyers do their initial searches on the internet. Marketing skills and ad writing abilities are a plus. Photos will also be required. All these items have costs attached.

### Showings

Availability for calls and appointments are a priority. If employed, showings will be limited to after hours and weekends. People could also knock on the front door without an appointment. This may create a problem if school children get home before the parents.

Pre-screening calls and asking questions about mortgage eligibility is helpful. This could eliminate those who are qualified to buy from those who are not. Similarly, it is ideal if contact information can be obtained for follow-up. This is sometimes difficult for the seller to acquire. Any feedback that is obtained could also be somewhat biased so as not to offend the seller.

### Risks

Without pre-screening of any kind, there can be risks in inviting potential buyers to view the home. They are total strangers! Are they serious about buying? Do they have other reasons for wanting to see the home? Should they go through the home without being escorted? If so, are valuables removed for security reasons? Is the medication in a safe place? Or, should the potential buyers be accompanied on their walk through the home? Will they be reluctant to ask questions or make comments because the home is being shown by the owner? Showings are often a dilemma for the seller.

### Solution

Hire a real estate agent! In the long run, such a professional can often net the seller the same amount of dollars- and sometimes even more. They know their markets and they have the skills- especially negotiating skills. Peace of mind results from knowing that the real estate agent has the expertise and is looking after the interests of the seller.

Interview two or three experienced agents and select one that is a good fit and in whom there is sufficient confidence.

## Sell a Home Using HGTV Property Virgins: Give First-time Home Buyers What They’re Looking For

Sandra Rinomato is the host of Property Virgins, a reality TV show on HGTV. Rinomato is a realtor who guides first-time home buyers in Canada and the U.S. She calls these specific buyers property virgins and helps them understand what it takes when buying their first home, whether it’s a stand-alone house or a townhouse or condo.

In addition to selecting and showing homes to prospective buyers, Rinomato helps educate buyers in the real estate market in the particular neighborhood where buyers are looking. By using some of the tips from Property Virgins, sellers may be able to get a leg up on this niche market of first-time home buyers and also appeal to more seasoned home buyers as well.

### Location, Location, Location

According to Rinomato, location is the number one indicator of price. Although sellers have no control over the location of their home when selling it, the location is important to all buyers. Keeping this factor in mind any time someone purchases a home is key so when it’s time to sell the home, the location will be a positive, not a negative.

Things that property virgins are looking for regarding the location can include proximity to public transportation, nightlife, restaurants, bars, and shopping.

### Open Concept is Key

Knocking down a wall to create an open concept layout may be a great renovation for sellers to consider when thinking about selling their homes. In older homes, small rooms were more the norm than they are today. Sellers could consider opening two small rooms, perhaps a dining room and a living room, to create one larger room that appears larger and that provides more uninterrupted square feet in general. This open layout also provides a better entertaining space, which is important to many first-time home buyers.

### Make Renovations To Sell

Kitchens and bathrooms sell homes. Many property virgins are coming straight from mom and dad’s house, which can be nicer than what they are able to afford in a first home. Spending money on renovations in the kitchen and bathrooms will gain sellers more return on their investment than in other areas of a house or condo. The investment is greater but so are the returns.

### Be Prepared to Pay Some or All Closing Costs

Property virgins are often strapped for cash. Sellers who are negotiable in their bottom line may attract a solid offer. Sometimes offering to pay a portion of closing costs, which first-time buyers do not always have saved, can put sellers in good placement to close the sale.

### Stay Optimistic and Keep Your House in Tip Top Shape

When selling a home in this tough real estate market, it’s important for home sellers to keep their homes looking perfect or as close as possible for showings. Staying on top of small repairs, depersonalizing the home, and cleaning before each showing and open house is key to showing a house off to property virgins as the gem it is.

## Condo Buyers Face Obstacles When Borrowing Money: Condo Mortgages Require a Higher House Deposit

Borrowing money has become more difficult for condo buyers. Mortgage lenders, such as Fannie Mae and Freddie Mac, are applying stricter criteria and requesting a higher house deposit in light of higher mortgage foreclosure rates. Whilst condo mortgages are still available, buyers are finding life more difficult than other categories of house buyer.

### Why is There Now Tight Criteria for Condo Mortgages?

According to CBS News, mortgage foreclosure rates were up 82% in 2016. That equates to 18.4 foreclosure per 1000 households. Mortgage lenders have identified that house payments on condo mortgages have the highest default rates.

Peter Milewski, an official at MassHousing, stated: “Condos are considered more problematic to lenders because a few foreclosures can affect property values for an entire complex. They carry monthly fees and special assessments that can create massive collective debts if individual unit owners fall behind on payments.”

### Condo Buyers Face a Higher House Deposit and Charges

The higher associated risk with condo buyers means that mortgage lenders have tightened their criteria. In order to be accepted, most banks now require a minimum house deposit of at least 20%. This is because a number of insurers will no longer provide coverage to banks offering condo mortgages.

Fannie Mae and Freddie Mac are charging condo buyers a surcharge equivalent of three-quarters of a percent of the loan value. In order to avoid this additional charge, a house deposit or equity equivalent to 25% of the property value is necessary. Brad German, a spokesman for Freddie Mac, stated that: “The point fee is meant to address the added risk of financing condos.”

### Borrowing Money more Difficult

Mortgage lenders are applying stricter criteria regardless of how individual states have been affected by negative equity and mortgage foreclosure. Amy Tierce, of Fairway Independent Mortgages, stated that: “The restrictions and fees, which are in force nationwide, unfairly penalize homeowners in the Boston area, where condo foreclosures have not been as prevalent as in other parts of the country.”

Mortgage lenders are increasingly reluctant to lend to condo buyers because of the problems faced in the event of mortgage foreclosure. Condo mortgages are still available, but borrowing money is now more difficult. Borrowers will now need a 20% house deposit.