Mortgage Calculator
Purchasing a home is a significant financial decision. Most buyers cannot pay cash for their properties, so they take out home loans instead. Although buying a home is a long-term investment that can pay off in the future, the ongoing costs and upfront payments are typically the primary barriers to homeownership.
When you take out a mortgage loan to purchase your home, you agree to pay back the principal balance to the mortgage lender, plus interest. Craft an accurate budget for your upfront costs and monthly mortgage payments to determine if you can afford the loan. A mortgage calculator is the perfect tool to help you estimate your monthly payments and make informed decisions when considering mortgage loans.
How Does the Mortgage Calculator Work?
A mortgage calculator is a tool that makes complex math simpler. Rather than plugging in mortgage interest rates and trying to calculate how they will affect your overall loan payments, the mortgage calculator does the hard work for you. You simply input the data that reflects the loan you want, and the calculator will determine your payments based on the mortgage payment formula, which includes the principal and interest.
For this mortgage calculator, you only need to input the total loan amount, the down payment, the mortgage interest rate, the amortization period (length of the loan payment plan), and the payment period (monthly, bi-weekly, or weekly).
Benefits of Using a Mortgage Calculator
There are many reasons to use a mortgage calculator when you start your home search. First, many first-time homebuyers do not fully understand the impact of interest on a home loan. By plugging various mortgage rates into the calculator, you can quickly see how that interest rate will affect both monthly payments and the total amount you will pay for the loan. Second, this tool can simplify the mortgage decision-making process. By playing with the numbers and testing different scenarios, you can see how the variables will change your monthly payment for a home loan.
Lastly, calculating your mortgage rate makes budgeting for your home purchase easier. When you buy a home, there are numerous expenses to consider. The mortgage payment, private mortgage insurance (PMI), utilities, property taxes, homeowners insurance, and other factors will become new monthly expenses. As you determine what you can afford, the mortgage calculator will give you an accurate picture of one of those major monthly expenses.
Understanding the Key Inputs
Payment Period
The payment period refers to how often you make payments on the loan. Most homeowners opt for monthly payments, but you can also look at the numbers weekly and bi-weekly. This mortgage calculator feature lets you assess your budgeting needs for accurate financial planning.
Total Amount
The total loan amount is the money you plan to borrow to purchase the home. This does not include your down payment on the house. To find this number, you will subtract your down payment from the home's final sale price. The total loan amount will represent the principal balance of your mortgage loan. If you have a higher loan balance to pay off, you will have higher monthly payments. This is why many homebuyers try to save as much as possible to put forth a larger down payment and save money in the long run.
Down Payment
The down payment directly impacts your total monthly payment. The more money you pay upfront to purchase the home, the smaller your loan balance will be. As a result, you will have a lower monthly payment.
With the calculator, you can input various down payment amounts to test how they affect your monthly mortgage payment plan. Try running the numbers with a down payment you can comfortably afford and another down payment that is a little higher to see how it changes your monthly payment.
Interest Rate
The interest rate on your loan is determined by several factors, including your credit score, the current housing market, and the lender you choose. Generally, you can access more competitive rates with a strong credit score.
Most home loans use an annual percentage rate, which means interest is calculated each year based on the remaining loan balance. Different interest rates will significantly impact the total cost of your loan over time and your monthly payment. Changing the interest rate in the mortgage payment calculator by just a few decimal points can change your payments dramatically, so test out multiple scenarios.
You should also know that payments will change depending on the type of loan you get. For example, an adjustable-rate mortgage will not have the same interest rate for the entire loan period, while a fixed-rate mortgage will.
Amortization Period
The amortization period is simply the timeframe for paying back the loan. Standard repayment plans for fixed-rate mortgages include 15, 20, and 30 years, and the period depends on the agreement with your lender.
If you choose a longer amortization period, your monthly payments will be lower, but the total loan cost will increase. The long-term costs are lower for shorter payment plans, but you will have higher monthly premiums.
For adjustable-rate mortgages, an initial fixed-rate period may be followed by shifting rates that depend on the market. This will impact the amortization period as well.
Real-Life Examples of Monthly Mortgage Payments
Let’s look at an example when playing around with the mortgage calculator. Let’s say you input the following information home’s sale price is $185,000:
- Total amount – $150,000
- Down payment – $35,000
- Interest – 4.5%
- Amortization period – 30 years
The resulting monthly payment would be roughly $580. However, the calculator shows what a larger down payment would do to your monthly payments. If we change the total amount to $145,000 and increase the down payment to $40,000, with all the rest of the data staying the same, the monthly payment drops to $529. By putting $5,000 more down upfront, you will save roughly $13,360 over 30 years.
Tips for Getting the Most Out of the Mortgage Calculator
The best way to optimize the mortgage payment calculator is to test many scenarios. If looking at multiple houses, keep most variables the same except for the total loan amount and down payment. See how the various monthly costs of these houses would impact your budget.
For one home, try testing out different interactions where you make small changes to the down payment or interest rate. This will estimate your monthly fees depending on how much you pay upfront and what mortgage rates you qualify for. The more you crunch the numbers, the more you see how each variable affects your financial planning.
Contact Us for Personalized Mortgage Assistance
TrueWay Mortgage provides personalized service for prospective homebuyers. We search for mortgage solutions that work for you rather than try to cram you into a cookie-cutter approach. With our one-on-one service, you will find it much easier to navigate the mortgage process and purchase a home you can afford.
Frequently Asked Questions (FAQs)
What is a mortgage calculator?
A mortgage calculator is an online tool for estimating monthly home loan costs. You can enter information such as loan amount, interest rate, length of loan, down payment, and other variables to help with budget planning when purchasing a home. Since these expenses vary, mortgage calculators typically don’t account for private mortgage insurance (PMI), homeowners’ insurance, HOA fees, or property tax rates.
Why should I use a mortgage calculator?
The primary reason for using a calculator is to help with budget planning. Many new homebuyers do not fully comprehend the impact of various factors on their monthly costs, and even experienced homeowners can leverage this tool to run some simple numbers. This calculator factors in the loan term, mortgage rate, down payment, and other factors for more accurate estimates of your monthly costs.
Contact Sam and Anisha Mauldin
TrueWay Mortgage
Start Calculating Your Monthly Mortgage Payment Today!
Even though our mortgage calculator does not account for property taxes, home insurance, or mortgage insurance, it is an incredibly useful tool for planning your budget. Use this tool today to calculate your principal and interest payments and prepare for your next home purchase with TrueWay Mortgage. Take the next step toward buying your home by contacting our team.