How To Use A Mortgage Calculator

How To Use A Mortgage Calculator

How To Use A Mortgage Calculator

Mortgage calculators are very popular among people who are looking to refinance or buy a new home. Part of what makes them so popular is that they make it so easy to plan a payment within the persons individual or family budget. Here is how it works.

Mortgage Principal

when you start using a mortgage calculator, you'll need to know the amount of money you are financing. If you have a mortgage currently, this is likely the amount you owe on your home. If you are purchasing a new home this will be the purchase price plus closing costs minus your down payment. Closing costs include the cost of the attorney, loan origination fees, and any additional fees like appraisals, surveys, home inspections, etc. Unsure about these items, add 5% to the amount financed as an estimation.

Mortgage Interest Rate

This is the interest rate you will be charged for the home loan. Many mortgage brokers and banks allow you to "buy down" the interest rate. This is called "points" (also known as an origination fee) and usually 1 point is equal to a 1% rate reduction. The amount of money charged for the points is added to the principal amount financed. I generally do not recommend buying points because while it may lower your payments, what it does is add pre-paid interest to the balance owed which can never be recovered.

Mortgage Term

The term of the loan is the number of months you will be financing the money. For instance a 30 year note would equal 360 months.

PMI, Taxes, and Home Insurance

Mortgage calculators can calculate what escrow payments will be based on real estate taxes, home insurance, and private mortgage insurance (PMI). PMI is required on a home loan where there is less than 20% equity in the home. Payments can be calculated with or without this info.

Output

The mortgage calculator will calculate monthly payments and total interest paid. An amortization schedule will outline the breakdown of principal and interest payments throughout the length of the loan. This is very helpful in the planning process prior to refinancing or buying a home.

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