How do I calculate my mortgage payment?
Generally, it's a better idea to use a mortgage calculator like this one, than to try to calculate your mortgage payment by hand. It's a complicated process, since each payment is a little bit different, and several things beyond just the principal come into play. But, if you're the sort who likes to know how the sausage gets made, this is the formula:
Your base 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. Your payment is based on three simple things: how much you borrow, at what rate you borrow it, and how long you'll need to pay it back.
Although the payment is the same each month, 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. Over time, you start to chip away more aggressively at the principal without even knowing it. However, your actual monthly mortgage payment consists of more than just P+I.
Mortgage payments typically include principal, interest, real estate taxes, and homeowners insurance, commonly called PITI. In many cases, fees like HOA dues and extra insurance for related natural disasters are included in the payment as well. Also, if you have a smaller than 20% down payment like many Americans, you will likely also have to pay for mortgage insurance, like private mortgage insurance (PMI) on a conventional loan. If you get an FHA loan, this is called 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 Hawaii
Hawaii's real estate prices aren't anything to sneeze at, but at least the property tax rate in the state is very low. Hawaii counties only collect an average of 0.26% of a property's assessed value, meaning that if your home is assessed at $517,600, you'll pay just $1,324 per year in taxes. It's 49th in the country, in fact, when it comes to the percentage of assessment that's taxed.
Climate change is having major impacts on Hawaii, threatening coral reefs and ecosystems, but the problem goes beyond sea turtles. Rainfall in Hawaii has been decreasing, and the sea level is rising, neither of which is great for homeowners. Although hurricanes are rare, with only five serious hurricanes or tropical storms hitting the islands since 1950, volcanic eruptions are still a risk. The island of Hawaii is host to four active volcanoes, and Maui is home to two more.
Flood insurance is definitely warranted if you live in a low-lying area near the coast, as storm surges could create expensive problems for your home. In addition, volcano eruption coverage should be considered along with your basic homeowners insurance policy, since this kind of damage will not be covered otherwise.
Ask your insurance agent what's appropriate, even if it's not required. You can also plug that number into the Hawaii mortgage calculator to help give you a better estimate of your overall payment.
Additional concerns for first-time Hawaiians
If you've spent your life in Hawaii, you already know how difficult it can be to get things from the mainland, but if you're moving there for the first time, this can come as quite a shock. Before you plan your Hawaiian move, keep in mind that you won't be able to move your belongings in a truck like you would to any other state in the country, including Alaska.
Instead, everything will need to be shipped on a boat or carried in a plane, so plan accordingly. It can take weeks to transport a car, for example, to Hawaii, and often at great cost. Many new Hawaiians find it's cheaper to rebuy furniture and other large items once they've reached their new home, rather than move their existing belongings.
Tips for first-time home buyers in Hawaii
The Hawaii Housing Finance & Development Corporation has permanently closed its Homeowner Assistance Fund, but you can still apply for loans with no down payment requirements through the VA if you're a veteran or USDA in some parts of Hawaii.
Advice for all first-time borrowers
In addition to VA or USDA loans, you can also apply for other loans with appealing terms for first timers, like FHA loans or conventional mortgages. 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. 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.