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What Does a Mortgage Calculator Actually Determine?

The UpEquity Team Oct 20, 2021
what does a mortgage calculator determine

Want to figure out how much your monthly mortgage payments will be? If you are a first-time homebuyer and you want to know what your monthly payments will be, using a mortgage calculator can help you. It can determine not just your monthly mortgage payment, it can also determine principal and interest, based on your annual interest rate and your loan term. If you are a current homeowner, you can use a mortgage calculator when interested in refinancing, to calculate what your new monthly payment will be if you get cash out, lowering interest rate or loan term. Using a calculator can help you understand what key factors are important and how they are used to calculate your monthly mortgage payment.

Homeowners who get a mortgage loan to buy their home, have to pay their lender monthly payments. Your mortgage payment may include homeowners insurance and property taxes.

When you borrow money to buy a house, you’ll be required to pay property taxes and homeowners insurance in addition to your principal and interest payments. It’s also important to note that you’ll have to take out private mortgage insurance if your down payment is less than 20% of the cost of the house, which increases your monthly payments. It’s crucial to have a comprehensive picture of all these payments before you put a down payment on a house so you can make better financial decisions. If you're looking to buy a home, you need to know more than these generalities in order to understand what you're getting into and the impact it will have on your finances. here’s what you need to know:


What Does a Mortgage Calculator Calculate?

So, how much home can you actually afford? A mortgage calculator will provide you with an estimate of your monthly mortgage payments. It will also break down your monthly payments into what you’ll pay for:

  • Principal and interest
  • Property taxes, and
  • Homeowners insurance

It also helps you analyze certain important features of your mortgage, including:

  • The size of mortgage you’ll need based on the home price and your down payment.
  • How much you’ll actually pay for the house versus the principal borrowed.
  • The amount of interest you’ll pay monthly and how much you’ll end up paying over the life of the loan.

These two factors will aid in comparing the different home loans so that you can choose the one with the most favorable terms.

A mortgage loan calculator crunches the numbers on your behalf to help you figure out how much home you can afford. It gives you a look at the numbers behind a loan allowing you to choose a mortgage that works for you.

How Does a Mortgage Loan Calculator Work?

Your monthly mortgage payment will depend on several factors, the most critical being:

  1. The home price or the loan principal is the home-purchase price minus the down payment and any other payments you'll have to foot out-of-pocket.
  2. The down payment you'll pay. Keep in mind that the higher your down payment, the less loan you'll need to buy a house.
  3. The annual interest rate on the loan.
  4. The term of the loan, or number of years you have to repay the loan. The most common mortgages are 15-year and 30-year loans.
  5. The number of payments per year. Typically this would be 12 months, but you're free to make extra payments.
  6. The type of loan, whether fixed-rate, interest-only, or adjustable

A mortgage calculator gives you an in-depth analysis of your loan. Most mortgage calculators will require four inputs from you: the price of the home, down payment, loan term, interest rate, or your credit score.

The interest you pay is highly dependent on your credit score as the lender will use it to evaluate your risk. If you have a higher credit score, you’ll pay less interest.

What Are the Benefits of Using a Mortgage Calculator?

It's ill-advised to start house hunting without a clear understanding of what you can afford. You can start your research on your own using the myriad of mortgage calculators available online. Still, it's important to have a sit down with a mortgage professional who will detail the home buying process and what your monthly responsibilities will need.

Also, a mortgage calculator will help you figure out what a comfortable monthly payment looks like. The last thing you want to do is get into a home you can’t afford. On this note, there’s a huge difference between the amount of mortgage you qualify for and what you can afford.

Many homeowners typically fail to account for the hidden expenses of homeownership when house hunting. These include closing costs, real estate agent commission and the costs of routine maintenance, major repairs, and even homeowners association (HOA) fees.

A mortgage calculator helps you factor in your principal, interest, taxes, and insurance (PITI) fees but cannot compute the expenses you’ll incur running your household.

For this reason, you must have some cushion in your budget to cater for some of the unexpected costs of homeownership.

Plus, every person’s scenario is different. Make sure all your monthly expenses have been accounted for and with room to spare. And don’t forget closing costs, which can cost up to 5% of the home purchase price.

All in all, a mortgage calculator will help you set a budget before you can start looking for homes. But, whatever you do, don’t go at it alone. Speak to a mortgage professional for further guidance.

Can You Determine Loan Approval by Using A Mortgage Calculator?

A mortgage calculator helps you determine how much you can afford to pay for a house in monthly installments. You can use a mortgage pre-qualification calculator to determine whether you meet the minimum requirements for a loan or how much you qualify for.

A pre-qualification calculator is an informal evaluation of your creditworthiness that helps you assess whether you’re financially ready for homeownership. It takes into account your credit profile, annual income, expected loan term, and mortgage interest rate.

Another critical factor that might impact pre-qualification is your debt-to-income ratio, which is a financial measure that compares the amount of debt you have to your gross monthly income. It’s used by lenders to determine your borrowing risk.

Mortgage Calculator—An Excellent Budgetary Tool

An accurate evaluation of your monthly mortgage payment structure is a key step when weighing your budgetary needs. A mortgage calculator helps you determine the monthly mortgage payments subject to the home price. Now, bearing in mind mortgage interest rates vary based on prevailing circumstances, this tool supports you when you’re looking to compare several loan options.

FAQs About Mortgage Calculators

#1- How accurate is a mortgage calculator?

The mortgage calculators you'll find online are pretty accurate. But, the accuracy of the calculators will depend on the accuracy of your inputs.

Also, mortgage calculators work best for those who don't have a complex financial situation. For instance, if you have a variable or nontraditional income or large debt load, you're better served getting a more customized analysis from a lender.

That said, it's always a good idea to talk to your mortgage lender, as this will ensure you get the best results.

#2- Can a mortgage calculator show how much you will be approved for?

A mortgage calculator provides an estimate of your monthly mortgage payment broken down by principal, interest, property taxes, and homeowners insurance. You’ll have to talk to a mortgage lender to find out how much mortgage you’ll be approved for.

Most lenders will base their assessment on your monthly gross income and your monthly expenses. This way, they’ll get a better picture of your financial capability.

#3- Are mortgage calculators free?

Yes, mortgage calculators are free. You can figure out the maximum monthly principal and interest payments you can afford without paying for the services. 


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