Mortgage Calculator

How to use this mortgage calculator

1. Enter in your home price (or your estimated home budget if you haven’t picked a house yet.)
2. Enter in your down payment amount. You can enter in a dollar amount or a percentage. Make sure to leave room for closing costs and other new home expenses.
3. Enter in your estimated interest rate. We set the interest rate to the 30-year fixed average, but you can change it based on your best guess.
4. Enter in your target city, neighborhood or zip code (mortgage terms are different based on where you buy a home).

This calculator will then estimate your monthly payment, broken out into four categories: principal and interest, property tax, homeowner’s insurance and mortgage insurance. Once you’ve estimated your payment, you can find a lender and loan program that’s right for you.

Costs Included in Mortgage Payment

Before diving into the intricacies of mortgage calculation, let us first understand what you can expect when applying for a mortgage.

The major part of your mortgage payment consists of the principal and the interest. The principal is the amount you borrowed, while the interest is the sum you pay the lender for borrowing it. Your mortgage lender might also collect an additional monthly sum for escrow. These funds are then typically used by the lender (or servicer) to pay your local property taxes and homeowners insurance.

Here is a simple breakdown of essential costs that are included in your mortgage payments.

Principal: This is the amount you borrow from the lender.

Interest: This is the fee the lender charges you for lending the money. Interest rates are expressed as an annual percentage.

Property Taxes: Local authorities set a yearly tax on your property. If you have an escrow account, your monthly mortgage payment typically includes one-twelfth of your annual property tax bill.

Homeowners Insurance: This home insurance protects you against financial losses and damage caused by natural hazards and unforeseen events like fire, storms, theft, falling trees, and more. If you reside in a flood-prone or other high-risk area, you’ll likely need an additional policy. Similar to property taxes, one-twelfth of your annual premium is usually collected each month and paid by your lender or servicer when due.

Mortgage Insurance: If you’re getting a conventional or FHA loan and your down payment is less than 20% of the home’s purchase price, you’ll be required to pay private mortgage insurance (PMI) premiums. These premiums are added to your monthly mortgage payments.

Understanding Mortgage Calculators

Now that you have a basic understanding of mortgage payments let’s find out how a mortgage calculator can simplify the process.

A mortgage calculator is a handy online tool that helps borrowers estimate their monthly mortgage payments. It simplifies the complex calculation by allowing homebuyers to input details about their potential mortgage.

Mortgage calculators allow you to experiment with your financial plans to determine how different scenarios can affect your monthly payments. For instance, you can adjust the loan term or down payment to see how these changes impact your mortgage interest rate and monthly cost.

The output is a detailed breakdown of the principal and interest portions of the monthly payment. This breakdown helps you understand how much you will pay over time and how changes in one variable affect your overall cost.

Due to the many variables involved, manually calculating your mortgage payment can be tricky. That’s why mortgage calculators are such a popular tool – they offer a convenient way to understand your payments, whether you’re buying a new home or refinancing.

How Can A Mortgage Calculator Help In Your Payment Planning?

If you’re looking to make the best financial decisions when buying a home or refinancing your mortgage, a mortgage calculator is undoubtedly the right tool for you.

Dave Ramsey, the financial expert, emphasizes the power of mortgage calculators. He says, “Using a mortgage calculator can give you a clear picture of what your monthly payments will look like, helping you make an informed decision and avoid financial pitfalls.“

If you’re still not convinced, ask yourself these five questions to understand the importance of mortgage calculators.

Are you spending more than you can afford?

Many first-time homebuyers make the mistake of getting a mortgage that pushes their budget. It is more common than you may think. Luckily, with a mortgage calculator, you can avoid this pitfall.

With a mortgage calculator, you can see your potential monthly payments, including homeowner’s insurance premiums and property taxes. This can help you determine if you’re stretching your home-buying budget too thin or if your debt-to-income (DTI) ratio is too high.

Does your budget allow for a shorter-term loan?

Shorter loan terms come with lower interest rates but higher monthly payments because you’re cramming the same amount of money into fewer payments. Can your budget handle a bigger bite?

The calculator allows you to compare the monthly payments and total interest for different loan terms, such as 10, 15, 20, or 30 years. This helps you find the right balance between affordability and long-term savings.

Should you put more or less money down?

A larger down payment translates to lower monthly payments – that much is clear. But how much is too much? The calculator allows you to evaluate different down payment scenarios and how they can impact your borrowing amount and total payments. You can find the balance that works right for you.

Is it worth paying off your mortgage early?

People often consider making extra payments to cover the loan faster. Find out if it works for you with the calculator. The calculator shows you the potential benefits of early repayment and how it affects your financial timeline.

When can you get rid of mortgage insurance?

Private mortgage insurance (PMI) adds to your monthly payment. The mortgage calculator offers an amortization table depicting when you’ll reach 20% equity on a conventional loan. Hitting this mark allows you to request PMI removal from your lender, saving you money each month. This means more cash back in your pocket!

Understanding Mortgage Calculator Terms

If you’re new to mortgage loan financing, it is best to get familiar with the following crucial loan financing terms to have a better understanding of your mortgage calculations.

Home Price: This is the total cost of the home you’re considering purchasing.

Down Payment: The down payment is the initial payment you make towards the home purchase, which is not covered by the mortgage. While the minimum down payment can vary depending on the loan program, it typically starts around 3% for many borrowers with good credit.

Loan Term: This indicates the duration over which you’ll repay the mortgage, such as 30 years or 15 years.

Interest Rate: The interest rate is the percentage you’ll pay on the loan amount, whether you’re purchasing a new home or refinancing an existing loan.

How to Lower Your Monthly Mortgage Payment

A mortgage calculator provides a valuable estimate, but remember that it’s merely a starting point. If the initial numbers seem out of reach, don’t worry! Here are some strategies to tailor your mortgage payment to your budget and make your dream home a reality:

Go with a Longer Loan Term: Choosing a longer loan term (like 30 years) will lower your monthly payment. However, remember you’ll end up paying more interest in the long run.

Spend Less on the Home: Reducing the amount you borrow by settling on a less expensive home will lower your monthly mortgage payments.

Shop for a Lower Interest Rate: Getting a lower interest rate can significantly reduce your monthly payment. Some lenders may offer very attractive low rates to lure you, but these might come with upfront fees called points. Be sure to factor in these points when comparing offers to find the option that truly minimizes your overall cost.

Make a Larger Down Payment: Making a larger down payment reduces the amount you need to borrow, which translates to a smaller monthly payment.

Find mortgages with down payment assistance and lower interest rates:

There are over a thousand different programs designed to help you buy a home with down payment assistance, special interest rates and tax breaks. By using these programs to buy a home, you could potentially lower your monthly payment.

What’s Next On Getting a Mortgage?

Now that you’ve used the mortgage calculator to estimate your monthly payment, you’re well on your way! The next steps will guide you through turning this estimate into reality:

●  Get a mortgage preapproval or prequalification.

●  Start shopping for homes and make an offer.

●  Submit your mortgage application.

Final Words

Securing a mortgage for your dream home can be challenging, but understanding the financial details and complexities is crucial. That is where a mortgage calculator can be so valuable. A mortgage calculator simplifies this process by helping you estimate monthly payments, plan for early payoff, and eliminate the burden of PMI. With homebuyers using mortgages, this tool is essential for making informed and prudent decisions.

By using a mortgage calculator, you can confidently assess your budget and explore different loan scenarios. From determining how much home you can afford to evaluate the benefits of extra payments, this tool provides clarity and peace of mind. With this calculator, you’re one step closer to making informed financial decisions that stand the test of time and plan your mortgage with confidence.