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  Mortgage Basics   Chapter 3: What determines your mortgage payment?
Your monthly principal and interest charges are determined by the rate and the amount of the loan.

Down payment


The down payment presents the biggest obstacle to homeownership for most buyers, especially first-time buyers and those in lower income brackets. Fortunately for those people, lenders have become more willing to underwrite mortgages with small down payments.

Most mortgage lenders require a cash down payment of 5 percent, 10 percent or 20 percent of the sale price. Some lenders have zero-down mortgage programs. If you can put down more than your lender requires, say 25 percent to 30 percent, your lender may be willing to overlook past credit blemishes, approve your loan without verifying your income or both. If you come up short on the down payment, less than 20 percent of the buying price, you may have to obtain private mortgage insurance, or PMI, to protect the lender before your loan is approved.

You can often lower your mortgage payment or afford a more expensive house by putting more money down.

Lowdown on down payments
Say you make $40,000 a year. Your maximum monthly mortgage payment (28 percent of gross income) would be $933. Assuming your total monthly debt is no more than $1,200 (36 percent of gross income), the bigger the down payment, the more expensive the house you can buy.

For instance, say the monthly mortgage payment of $933 has an interest rate of 7.5 percent. In a 30-year fixed-rate mortgage, that monthly payment covers a total principal of $133,435.45. With 10 percent down, that mortgage would cover a house worth $148,262. With 20 percent down, the house price would be $166,794.

Say you want to keep the monthly payment to $1,060. How large of a mortgage can you get? The charts below consider the key factors of interest rates, down payment amount and the length of mortgage term.

30-year mortgage
Interest rate Monthly payment Affordable price with 5% down Affordable price with 10% down Affordable price with 15% down Affordable price with 20% down
7.00 $1,060 $167,712 $177,029 $187,442 $199,158
7.50 $1,060 $159,578 $168,443 $178,352 $180,499
8.00 $1,060 $152,064 $160,512 $169,954 $180,576
8.50 $1,060 $145,113 $153,174 $162,185 $172,321
-- Posted: May 1, 2006
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