Listen to this article

When you take out a mortgage for the first time or refinance your current mortgage, a lot of questions flood your mind like what the interest rate will be, how much money you will save, how soon you will get rid of it, and how much you will end up paying in total.

Professional advice is not far from your reach when you are to wipe away your doubts about a mortgage. It is the largest debt that keeps you tied up with it for 15, 20 or 25 years. You will certainly have foreboding about missing payments and losing your house.

When you borrow money to tide over, you know that you have to clear the dues by the next payday, so you do not have to worry about your repaying capacity much. Still, you would certainly like to prognosticate your future financial condition in case of a mortgage.

Here comes the role of a mortgage calculator. Various banks and private lenders have their own mortgage calculators to help you know the estimated cost. If you know how much you want to borrow, you can get to know the interest you will pay on top of it. However, the displayed figure will exclude fees.

The Formula to Calculate the Mortgage Payment

You do not need to put figures into the formula when you use an online calculator. Just write the figures, and you will get all the details. However, you should know the basic understanding of the formula, so you can better understand how changing variables will impact the equation:

The Formula to Calculate the Mortgage Payment is as Follows:

M = P[R (1+R) N]/ [(1+R) N – 1]

• M = monthly payments
• R = rate of interest
• P = principal amount
• N = number of payments

This basic formula is calculated based on the loan principal and interest before taxes.

Types of Mortgage Calculator

There are various types of mortgage calculators; each has been designed with a particular purpose. Before you use a calculator, make sure that you know that you are using the right calculator.

• Purchase Calculator:

You will need a home affordability calculator if you are getting on them property ladder as a first-time buyer. The purchase calculator will help you know the size of the down payment. You do not need to work on figures while using an online calculator, but you must have the following details if you want to be sure about the cost by manual estimation:

1. Sale price
2. Down payment
3. Estimated credit score
4. HOA fees

Other factors to keep in mind to figure out your affordability include your income and other debts. Note that your repaying capacity should be as strong as possible. However, you cannot compromise with your other expenses. A rule of thumb says that no more than one-third of the income of all combined income of all joint applicants should go on the mortgage payment.

It is recommended that you use a poor credit mortgage calculator. It is a good idea not to have any other outstanding debt at the time of mortgage application, but it should not be too high if that does not seem possible.

• Refinance and Home Equity Calculator:

Refinance calculators come in handy when you want to replace your existing mortgage with a new one. Refinancing helps you avail of a new mortgage at a lower interest rate. However, you will pay early repayment fees on your current mortgage. You might want to know how much refinancing actually helps save money after bearing the cost of early repayment fees.

Likewise, you will need a home equity calculator to know how much more money you can borrow based on the equity you have built. Refinance calculator only helps determine whether or not you should replace the old one with a new one.

You can get the figures if you know the estimated market value, your credit score, zip code, and mortgage balance. However, it is worth noting that they may seem very impressive, but it does not include other factors like your income, outstanding debts, and the like.

How a Mortgage Calculator Can Help

It is important to calculate your budget before taking out a mortgage so you do not struggle to make payments. Whether you are buying a house for the first time or refinancing your existing mortgage, this will be your largest expense over a period. The calculator can help you decide:

• The Ideal Length of the Loan:

A longer repayment period could be ideal if your budget is not so strong. The monthly payments will be lower, but you will end up paying more money in total over the course of the mortgage. However, if your budget has some wiggle room, you can choose a smaller repayment period. It will prove to be cheaper, but the size of the monthly payment will be higher.

• How Much Can You Afford:

The calculator will also provide you with an estimation of monthly payments, including taxes and insurance. You can change the variables to know exactly the amount that fits your budget. Remember that this is the estimated cost only. For instance, if you want to take out a mortgage with bad credit and no deposit, you might be refused at the time of application.

• How Much to Put Down:

Based on the monthly and total costs, you can decide whether to increase the value of the deposit. The higher the down payment, the lower the loan-to-value, and the lower the total interest.

The Final Comment

A mortgage calculator can help you know the estimated cost of your mortgage. This will help you frame your budget accordingly. If you need professional advice, you can also seek a mortgage broker. They will better advise you on how you can strengthen your profile.