How do I calculate my mortgage payment?
Calculating a mortgage payment by hand can be incredibly tedious, since the component parts will change every month (though the base total is the same). But if you're so inclined to do it, you'll need the following information: your principal amount for the month you're calculating, the interest rate, and how many months remain in your term. Then, simply follow the formula below:
Your basic mortgage payment, made up of just your principal and interest charges (often known simply as "PI" or "P+I") is the result at the end of this calculation. As stated above, the payment is the same each month, but the allocation of interest and principal is different each month, with increasingly more principal being added into the payment as your balance decreases and interest charges become less. However, your actual monthly mortgage payment consists of more than just P+I.
This is why it's often just easier to use a mortgage calculator like this one to do the math for you.
Mortgage payments typically also include principal, interest, real estate taxes, and homeowners insurance. This is commonly called PITI (see how that works?). Sometimes, extra fees like homeowners association (HOA) assessments are also included in the mortgage payment, as well as additional insurance for related natural disasters. In addition, if you have a smaller than 20% down payment like most Americans, you will likely also have to pay for mortgage insurance. This is private mortgage insurance (PMI) on a conventional loan. For an FHA loan, it'll be mortgage insurance premium (MIP).
To calculate your new mortgage with these additional expenses included, just click "show additional inputs" on the mortgage calculator above and add your estimated figures. It will get you a very close estimate of what to expect.
Things to know before buying a house in Alaska
Alaska home prices are more or less in line with the national average, which may surprise some folks, but the taxes homeowners pay are definitely above average. In fact, Alaska is ranked No. 13 in highest property taxes as of the writing of this article. On average, the counties collect 1.04% of a property's fair assessed market value each year in taxes. This means that if your home was assessed at $232,900, you'd pay $2,422 in taxes. Anchorage has the highest tax rate in the state, at 1.32%
Despite the higher taxes, Alaskans also benefit from the Alaska Permanent Fund Dividend, which is a payment every eligible resident of the state receives as a portion of their share of the state's mineral royalties for the year. In 2023, the dividend was $1,312.
Alaska's climate
Alaska is at the forefront of climate change, with its exposure to melting sea ice and extreme latitude. It's actually warning at two to three times the rate of global climate change, which is shrinking glaciers, thawing permafrost, and increasing precipitation that falls as rain instead of snow. Higher temperatures are also contributing to fish kills and wildfires.
If you're considering a move to Alaska, ask very pointed questions about the region you intend to occupy. You may need coverage beyond your basic homeowners insurance policy, such as flood or wildfire insurance, for the specific location where you'll be moving. These optional coverages can save you a lot of money and headache, should climate change continue to intensify these types of natural phenomena.
With all the right quotes in hand, you'll be able to plug your total insurance premiums into the Alaska mortgage calculator to help give you a better estimate of your overall payment.
Tips for first-time home buyers in Alaska
Alaska has two first-time home buyer programs available through the Alaska Housing Finance Corporation (AHFC) to assist residents in becoming homeowners. Here's a rundown of the two main programs. You can find more information on the agency's website.
First Home
The First Home program offers a reduced interest rate to borrowers who qualify. There are no income limits or maximums on the property's price.
To qualify for this program, Alaska residents must:
- Be a first-time home buyer
- Purchase a property that will be their principal residence
First Home Limited
Some home buyers will additionally qualify for a program called First Home Limited. It's very similar to First Home, also offering an interest-reduced loan, but with several caveats.
To qualify for this program, Alaska residents must:
- Be a first-time home buyer
- Purchase a primary residence under the threshold for their area. As of Feb. 4, 2024, the lowest cost limit in Alaska was $481,176.
- Have an income below the threshold for their area. As of Feb. 4, 2024, the lowest income cap was $106,900 for a one-to-two person household.
It's important to understand that this loan may be subject to federal recapture tax, since the low interest rate is made possible by tax-exempt municipal bonds. You'll want to check with a tax expert to understand what your responsibility is and under what circumstances it will apply.
Closing cost assistance
In the past, Alaska has offered closing cost assistance, but does not currently have any funding available for this program. At the time it was available, however, the state offered up to 4% of the principal amount of the mortgage in the form of assistance that could be used for a down payment or closing costs. This program was meant to work with FHA, VA, or USDA mortgages on primary residences.
Although not currently active, this program could become available at any time, so ask about it if you're in need of additional assistance from the state of Alaska.
Advice for all first-time borrowers
Whether or not you qualify for a home mortgage purchase program in Alaska, you can still apply for other loans with appealing terms for first timers. If you're a veteran, you may qualify for a VA loan, which has a zero down payment option, or in many parts of Alaska, a USDA loan may be an option -- these programs vary, but generally have pretty generous terms.
As in other parts of the country, FHA loans or conventional loans are also available. Both have low down payment requirements, making them easier to secure, and can be used on a vast array of homes.
In order to qualify for any mortgage, you'll want to work hard to make yourself into the best candidate possible. Here are a few tips:
- Boost your credit score with on-time payments and low credit card utilization
- Pay off debt to improve your debt-to-income ratio
- Secure a steady job (or don't leave your current job)
- Save for both closing costs and your down payment
In addition, guard your credit carefully by not opening any new accounts or applying for credit too soon before your loan application. Each time you apply or open a new credit account, your credit will take a little hit. Inquiries take two years to fall off your credit report, so plan accordingly.