Using a Mortgage Calculator

Written by: Christy Rakoczy

A mortgage calculator is a tool that is used to determine how much of a mortgage (home loan) you can afford to take. A mortgage calculator can show you how much your monthly payments will be under different circumstances, and how much you will pay back in full over the life of the mortgage.

There are different types of mortgage calculators available depending on whether your mortgage is a fixed rate mortgage (a mortgage that does not change its interest rate over time) and an adjustable rate mortgage (a mortgage that has an interest rate that can adjust periodically over time).

Using a Fixed Rate Mortgage Calculator

There are many different mortgage calculators available on the web. They smart financial customers with useful estimates about the total cost of a mortgage. For example, Primerates provides a simple and easy-to-use mortgage calculator.

In order to use any mortgage calculators, you will need several key pieces of information including:

  • The mortgage amount (The total amount of money you are planning on borrowing from the lender. This should be equal to 80 percent of the cost of the house you are buying, since mortgage lenders typically will not lend you more than 80 percent of a property’s value. )
  • The mortgage term (The amount of time that you will be taking to pay back the mortgage. In the vast majority of cases, this will be either 15 or 30 years).
  • The interest rate. (This is the “cost” of borrowing money. You can get your interest rate from your lender or if you are just getting started in the process and don’t yet have a bank you are looking at, you can use Well’s Fargo’s chart of current interest rates to get an idea of what the market rates are).
  • The start date. (This is the date when the mortgage will first be issued. You can put in any date if you aren’t sure.)

Once you have all of this information available to you, input it into the appropriate boxes on the website. Then hit the “calculate” button. The estimated monthly payment amount will show up in the box labeled “monthly payments.”  Property taxes and insurance will also need to be paid on your home and lenders take those into account when they are deciding the total amount you are allowed to borrow.  The more precise your estimate for these rates, the better your mortgage estimate.

Using an Adjustable Rate Mortgage Calculator

An adjustable rate mortgage calculator is a bit more complicated to use because your interest rate does not necessarily stay the same over time.  In fact, it can be very difficult to determine how much you will end up paying with an adjustable rate mortgage since no one can predict the future or know what market interest rates will do (the adjustable rate mortgage usually adjusts upward or downward based on some specific financial index).

Still, to get an idea of what your adjustable rate mortgage may cost over the life of the loan based on assumptions about interest rates, you can use the calculator at Calc XML.  TO use this calculator, you will need to input:

  • The loan amount (The total you are borrowing).
  • The initial interest rate (The amount you will pay in interest when you first get the loan.)
  • The number of months that you will have to pay off the loan in full (This is usually 30 years).
  • The absolute minimum rate over the term of the loan (Your mortgage information should specify how low the interest rates can potentially go when they adjust).
  • The absolute maximum rate over the term of the loan (Again, your mortgage documents will specify what the “cap” is when the rates adjust).
  • The number of months before the first rate adjustment (You typically have a fixed or guaranteed interest rate for a limited time- such as 5 years or 7 years- before rates go up. The loan you take may be referred to as a “5-year ARM” for example, which means it is an adjustable rate mortgage that starts going up after five years).
  • The number of months between rate adjustments (Your loan may adjust or change its interest rate once a month, once a year, or at some other frequency).
  • A prediction on what interest rates will do over the life of the loan (You’ll need to predict whether they will go up, go down or stay the same and by what percentage. Predicting this can be a major challenge since no one really knows, but you can consider predictions made by economists and published online or shared on the news in order to help determine the answer to this).

Once you input all of the required information, hit “submit.” In the “results” section, you will see a calculation of what your total payments will be over the life of the loan, and of the total amount you will pay in interest before the loan is paid back in full.

Why Use a Mortgage Calculator

A mortgage calculator can be an invaluable tool in helping you to decide how much house you can afford. It can also help you to make a determination on whether you want to buy a home in a particular price range by allowing you to see how much the home will cost you over time.


Using a Mortgage Calculator

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