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US Mortgage - monthly repayment calculation

US Mortgage - monthly repayment calculation

Old Feb 18th 2015, 4:25 pm
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Default US Mortgage - monthly repayment calculation

Can anyone explain what the calculation is?
Lets say $120,000 borrowed for 10 yrs at 5% fixed. Principal will be repaid at $1,000 per month. Interest will be 5% of $120,000 for first payment, and 5% of $0 for last, straight line ie the same as 2.5% over the lifetime of the mortgage. This is $3,000 per year, $250 per month. Total $1,250 per month. I'm sure this worked in the UK, but the online calculators here give me $1,272. Where am I going wrong?
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Old Feb 18th 2015, 4:32 pm
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Default Re: US Mortgage - monthly repayment calculation

You have made several simplifying approximations, which lead to the discrepancy. For starters you cannot use 2.5% per year average. To calculate the exact number you need to perform the calculation using an annuity function/ calculator/ tables. The calculation is more or less the same in the UK and so your simplified approximation was not giving a precise answer there either.

Use this mortgage calculator, or Google "mortgage calculator" as there are many out there, pretty much every mortgage lender or real estate related web site has (a link to) one.

Last edited by Pulaski; Feb 18th 2015 at 6:31 pm.
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Old Feb 18th 2015, 4:37 pm
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Default Re: US Mortgage - monthly repayment calculation

Thanks Pulaski. I am sure the 'simple' method worked in the uk though.

Last edited by newadventure; Feb 18th 2015 at 4:43 pm. Reason: Answered before reading previous post properly
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Old Feb 18th 2015, 4:46 pm
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Default Re: US Mortgage - monthly repayment calculation

Originally Posted by newadventure View Post
Thanks Pulaski. I am sure the 'simple' method worked in the uk though.
No, it didn't. (I was adding to my post above while you were replying to me).

FWIW The lower the interest rate the closer the approximation gets, coinciding exactly when the interest rate = 0%. Back in the heady days of the 1980s when mortgages were often at rates exceeding 10%, and 15% was quite possible, the approximation method was substantially "off" compared to the annuity method.

Last edited by Pulaski; Feb 18th 2015 at 5:00 pm.
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Old Feb 18th 2015, 5:16 pm
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Default Re: US Mortgage - monthly repayment calculation

Don't forget property tax and insurance.
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Old Feb 18th 2015, 6:12 pm
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Default Re: US Mortgage - monthly repayment calculation

Thanks Sir E, but that was the one simplification that Pulaski allowed

We are hoping to join the ranks of the mortgage-paying, interest-deducting classes very soon. Predictably, I have just seen the first headline about house prices falling
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Old Feb 19th 2015, 7:46 am
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Default Re: US Mortgage - monthly repayment calculation

Originally Posted by newadventure View Post
Thanks Sir E, but that was the one simplification that Pulaski allowed

We are hoping to join the ranks of the mortgage-paying, interest-deducting classes very soon. Predictably, I have just seen the first headline about house prices falling
If you don't like those headlines, stick around a couple of days - they'll be saying the opposite by then. A couple of days later, the opposite again. A couple of days later ...

If you are concerned about house price fluctuations, it sounds like a long-range plan is needed. If you plan to stick around for 10 years, prices will likely smooth out, plus of course the longer you pay the mortgage, the greater the increase in capital you have in the house. If you're not sure what your plans are, maybe renting is the best plan.

The property market is probably the biggest financial uncertainty for most expats, especially those who aren't sure how long they'll be expats for. It can work in both ways. Some go back to the UK quids-in, others return to a house half the size they had when they left, and/or start at the bottom of the property ladder again.
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Old Feb 19th 2015, 3:42 pm
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Default Re: US Mortgage - monthly repayment calculation

Do be very careful about the property tax where you intend to buy. Here in Austin, Tx we have no state income tax so basically everything gets paid for by the property tax. Our house (a very normal suburban house) has property tax of $11,000 pa and that's with homestead exemption. Our mortgage company takes the mortgage payments and the monthly insurance payment and this part gets put into an escrow account.
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Old Feb 19th 2015, 3:59 pm
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Default Re: US Mortgage - monthly repayment calculation

Thanks all. We have a good estimate of property taxes, they are a bit more reasonable here in SC.
RE: the property price thing, we intend to be here for a while longer (assuming we get the green card). Have been renting for the last 3 years, so it is not something we are jumping into with no thought.
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Old Feb 19th 2015, 11:15 pm
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Default Re: US Mortgage - monthly repayment calculation

Also be sure to check what the property taxes you will pay and not just what the current owner pays. Some states, like where I live, have annual caps on property taxable value increases; but when the house sells the taxable value may re-assess at a much higher rate.
I don't know if SC does but it might worth checking.
If I sold my house then bought it back the next day my property taxes would almost triple. Realtors may tell you what last years taxes were but you may have to ask them to find out what value that was based on.
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