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NEW BOOKLET CALCULATES WHAT YOU CAN AFFORD

SHARE NEW BOOKLET CALCULATES WHAT YOU CAN AFFORD

One of the first questions potential homebuyers need to answer is how big a mortgage they can afford. A handy chart in a new booklet by HSH Associates, a mortgage information firm, will help you get a clearer picture.

The chart shows what price mortgage you are likely to qualify for at various interest rates and monthly payments, assuming you are looking for a 30-year mortgage. The monthly payment includes only principal and interest. Property taxes and mortgage insurance would be extra.As a general rule of thumb, you can spend up to 28 percent of your gross monthly income on housing (principal, interest, taxes and insurance) and still qualify for a mortgage. Depending on your income and credit record, some lenders will even let you go a little higher.

- When looking for the best interest rate on mortgages, don't forget to consider the mortgage term as well. There is no reason to pay the premium for a 30-year fixed rate mortgage if you don't need that much of a loan. The HSH book offers an example of the high costs of a long-term mortgage:

Say you buy a house and stay for seven years. You get a $100,000, 30-year, fixed rate mortgage at 7 percent interest for a monthly payment of $665. After seven years, you would have paid $47,033 in interest and you would still owe $91,147. "Seven years of paying and you've paid off only $8,853 - less than 10 percent of the amount you borrowed," HSH notes.

But suppose instead you got a 7-year ARM. Even though this mortgage has an adjustable rate, it doesn't start adjusting until after the seventh year, so essentially you get a fixed rate for seven years at a lower interest rate, 6.625 percent. In this case, your monthly payment is $640 a month. After seven years, you would have paid $44,389 in interest and paid off only $10,603. "But you got a fixed rate mortgage without the fixed rate price and paid off about $1,200 more principal to boot," HSH notes.

A third alternative is a 15-year mortgage with a fixed rate of 6.5 percent. Your payment would be a heftier $871 a month. "But after seven years you would have paid only $38,248 in interest. With a remaining balance of $65,075, you would have paid off nearly one-third of what your borrowed in the same amount of time," HSH says.

- The HSH booklet has other handy charts, including one on how to figure out the real cost of points and another that acts as a mortgage calculator. It's not cheap - $20- but also comes with an up-to-date list of mortgages rates in your area. For more information, contact HSH at 800-873-2837 or online at (http://www.hsh.com) or through America Online (keyword: real estate).