Mortgage Calculator

Ultimate Guide for Using a Mortgage Calculator: Plan Your Ideal House with Assurance

Buying a home will undoubtedly become the greatest decision that you’ll make in life. The only problem is that it might be the most stressful one as well.

You go out looking for homes, fall in love with the kitchen, see yourself raising children in the yard – but the real world intrudes. Can you actually pay for this home? Not just the down payment, but the regular repayments, taxes, and insurance?

That’s precisely where a Mortgage Calculator becomes your savior and keeps you from making an irrevocable mistake.

What Is a Mortgage Calculator?

It’s a free web-based service that calculates how much money you’ll have to repay every month on your home mortgage. Nothing more than that.

Math skills are not required. Nor is it necessary for you to contact your bank every time you need to find some data. Just enter a few pieces of information and voila! You immediately get the answer you need.

In other words, it’s a personal finance assistant that is available even when you wake up in the middle of the night to contemplate whether you can afford a house you’ve seen last Saturday.

The free online mortgage calculator considers the price of your future house and other financial conditions, including your down payment, duration of loans, and interest rates, to calculate your mortgage payment. The online calculator also considers other additional expenses related to buying a house.

This is more than a tool for calculations – it is a reality check!

How to Calculate Mortgage Payments – Step by Step

It may seem complicated to use a home loan calculator but, in fact, everything is really simple:

Step 1 – Input Home Price

Enter the cost of the house you intend to buy. For estimation purposes, you may insert any approximate number.

Step 2 – Input Down Payment

The sum which you are going to pay as a down payment can be entered either in dollars or in percentage. The question arises – how much should I pay as a down payment?

Step 3 – Select the Type of Mortgage

In this step, you need to select either a 15-year or a 30-year mortgage. The pros and cons of each type will be analyzed below.

Step 4 – Input Interest Rates

Interest rates can be found at the website of your bank or lending institution.

Step 5 – Additional Expenses

Most of the online loan calculators omit this step, but ours does not. You are recommended to estimate the total expense related to property taxes, home insurance, and association fees. In our case, you may also consider PMI.

Step 6 – Click “Calculate”

It’s that easy!

The Down Payment: More Important Than You Think

To be honest, most buyers feel uncomfortable with regard to calculating a down payment.

What it means is quite simple – the down payment is the sum of money you give upfront when purchasing a property while the remaining part represents your loan. In other words, if a house costs $300,000 and you want to make down payment equal 10%, it would be $30,000.

The 20% Rule

You’ve certainly heard it before – put down at least 20% of the home purchase price if you can. Why?

This is because, with less than 20% down, your lender will make you take out Private Mortgage Insurance (PMI). That’s an additional expense each month – usually anywhere from 0.5% to 1.5% of your loan total yearly, or somewhere around $100 to $300 on a $270,000 mortgage!

And the bad news is, you aren’t buying protection with that extra money. Your PMI protects the lender, not you!

The silver lining? When you build up the equity of your home to 20%, you can petition to have PMI dropped.

Calculate exactly what PMI will do to your mortgage payments with our mortgage calculator including PMI.

Buying with Less than 20% Down: Can You Do It?

Of course! With some loans, 3% down is all you need. Saving 20% isn’t going to happen overnight, but that shouldn’t get in your way!

If you decide to buy with less than 20%, just remember that you’ll have to pay PMI.

Your new home isn’t coming cheap – it’s going to set you back plenty, but make sure you budget for those additional costs. They will add up quickly!

Mortgage Interest Rates – A Crucial Number

It can take a while to fully grasp the significance of mortgage interest rates, especially when you’re just starting to learn about mortgages.

It’s easy to think you’re comparing mortgages based on the advertised rate alone – not realizing that even a fraction of a percent off can mean you end up paying tens of thousands more in interest in the long run!

A 1% difference on a $250,000 loan over 30 years will mean an extra $50,000 in interest payments.

That’s not an insignificant number.

Fixed Rate vs. Adjustable Rate

Fixed Rate Mortgage: Interest rate remains unchanged throughout the life of the loan. Your monthly mortgage payments are consistent all the way through. This is the most common option due to predictability. You will be able to foresee the costs in year one as much as year 29.

Adjustable Rate Mortgage (ARM): The interest rate starts low – sounds promising. However, after an initial fixed period (5 or 7 years in most cases) it gets adjusted according to market performance. It goes up. Sometimes dramatically.

It makes sense to use an ARM if you expect to sell the property before the rate starts changing. In case of a long-term investment, a fixed rate would be more secure.

Tips for Getting a Lower Rate

Several factors affecting the mortgage interest rate to consider:

• Credit Score – The higher it is, the lower the rate you will be offered. An increase of only 50 credit points prior to application may have a tremendous effect on your rates.

• Down Payment – Higher down payments indicate lower risk for lenders. As a result, the interest rate becomes better.

• Loan Term – Short-term loans will usually result in better interest rates than long-term loans.

• Comparison Shopping – Shop around! Never settle with one lender alone; get a minimum of 3 different loan offers.

15 vs 30 Year Loan: Which Should I Choose?

Perhaps the most frequently asked question is this one: there’s no universal answer to it.

30-Year Loan

• Low monthly payments

• Budget-friendly

• Interest cost much higher

• Longer to gain equity

15-Year Loan

• High monthly payments

• Paying off your house twice faster

• Total interest cost much lower

• Better chances of lower interest rate

To put things into numbers, suppose you have borrowed $250,000 at 6.5% interest rate:

• 30-year loan: Monthly payments of $1,580. Total interest payment of $319,000.

• 15-year loan: Monthly payments of $2,180. Total interest payments of $142,000.

That’s a saving of $177,000 just by opting for the shorter repayment period. However, your monthly payments will be $600 more. Can you afford that?

That is why it pays to have a mortgage calculator at hand. Just plug in your figures and see which option is better for you.

The Most Common Mistakes First-time Homebuyers Make

Buying a home can be thrilling. Yet thrill can make one make mistakes. These are the mistakes that many buyers make:

Mistake 1 – No Mortgage Calculator

Some homebuyers fall in love with the house they want to buy without even checking whether they can afford it. That way, they are left with either buying a too expensive house or having no home whatsoever. Calculate your mortgage payment first, then go look for the house.

Mistake 2 – Ignoring the Extra Expenses

Just because your mortgage payment goes down to monthly installments doesn’t mean that you don’t have other expenses related to your property. There are taxes, homeowners insurance, HOA fees, and possibly PMI.

Mistake 3 – Failure To Get Pre-Approval

Entering negotiations without having already received pre-approval is similar to going for an interview without having submitted a resume. The seller will take a serious look at someone who is pre-approved. You’ll know exactly how much money you can work with.

Mistake 4 – Putting All of Your Savings Into the Down Payment

True, having more money for a down payment is always better. However, you shouldn’t be left with no funds in the bank once everything is settled. Things break, and things happen, and homeownership entails unexpected costs.

Mistake 5 – Not Considering the Total Cost of Owning

There’s more to consider than the mortgage alone. Maintenance costs (usually equal to 1-2% per year of the total cost of the home), utility adjustments, and planned renovations are also important factors.

Why Our Free Online Mortgage Calculator Is Different

Basic calculators take into account only the mortgage amount and its annual percentage rate. And while this method works well for getting some preliminary estimates…

Here’s what our mortgage calculator does:

• It features PMI for down payments less than 20%.

• It considers the cost of property taxes and homeowners’ insurance.

• It allows for comparisons between 15 and 30 year mortgages.

• It provides detailed monthly payments.

Renting vs Buying: Fast Facts

Buying is recommended if you’re going to live in the place for more than 5 to 7 years, have a steady income source, and your monthly payment equals the one you would normally pay in rent. Renting is recommended if you’re still trying to determine where to live, don’t have enough money saved yet, or simply can’t afford buying a house. Both choices are good as long as they’re not made due to external pressure.

Frequently Asked Questions (FAQ)

Is the total payment always the payment for your mortgage?

Not necessarily. You will also need to cover the costs of Principal, Interest, Taxes, and Insurance.

Should I take a 15 or 30 year mortgage?

Calculate both of them using our home mortgage calculator.

What does PMI stand for?

Monthly fee charged if your down payment for a house is less than 20%.

How accurate are online calculators?

Very accurate for planning purposes. Actual results will vary based on your individual lender and credit score.

What credit score do I need?

Need at least a 620 credit score. Anything over 740 will earn you the best mortgage interest rates.

Also See More Calculators

• Interest Rate Calculator – Calculate your interest payments easily.

• Car Loan Calculator – Find out your car loan payments before you shop at the dealerships.

• Loan Calculator – For all your other loan calculations.

Start making better decisions with accurate figures. Try our free online mortgage calculator now.