How to Use Our Free Mortgage Payment Calculator
Before you start to use this mortgage calculator, it’s a good idea to create a budget and decide how much you can comfortably spend per month on your mortgage payment. This way, you will be able to determine how much house you can afford and can make better use of this tool. Remember that the interest charged on your home loan can cause your payments to jump dramatically, and this may affect the loan amount that you wish to apply for.
You may also receive offers for different types of mortgages, such as fixed rate or adjustable/variable rate. Some lenders will present you with a fixed short-term promotional interest rate for the first two to ten years of the loan, and will then begin charging you their standard variable rate. If you know that this is the case, our calculator will prepare you for when your rate changes. It is very important to estimate what your monthly payments will be after the promotional period ends to avoid getting stuck with a mortgage you can’t afford.
Our free mortgage payment calculator makes this as easy as possible. All you have to do is enter some very basic information about the mortgage offer, or even a hypothetical one as part of your initial research. Once you have input all the required information, just click the Calculate button, and a pop-up window will emerge with detailed information about the payments for that mortgage, including an amortization schedule.
You’ll need to enter:
- The amount of the mortgage in dollars
- The interest rate, as a percent
- The term of the loan in years or months (make sure you tick the appropriate box)
When you are finished, click Calculate. Or, click Reset to return the calculator to its default values. Feel free to play around with the numbers to gain a better understanding of how the different factors affect your mortgage payments.
Benefits of a Mortgage Calculator
- Buying a home is usually the biggest financial decisions a person will make in their lifetime. For that reason, it is important to understand the true cost of your mortgage and how much you will owe each month to be sure that that amount fits comfortably into your budget. Before you take out a mortgage, you will want to consider how the loan amount, interest rate and loan term affect your monthly payment and the total amount you will pay over the life of the loan. This free mortgage calculator makes it easy to do just that.
- You can use this mortgage calculator as a research tool to help determine the sort of mortgage you are looking for. Or, you can use it to compare multiple offers from one or more lenders to easily figure out which one best fits your budget and long-term goals. It only takes a minute to get detailed estimates for your mortgage payment and an estimated amortization schedule.
- What is the mortgage amount?
The mortgage amount is the total amount of money you borrow. In repayment, this will be your principal. Each monthly payment will be divided between interest and repayment of principal according to the amortization schedule (P & I = principal and interest).
- How do I know what mortgage amount to enter?
You can enter a completely hypothetical amount here, but a smarter way to use the mortgage calculator is to have a ballpark figure on which to base it. For example, if you have a specific house in mind, you can use its list price as a starting point. You can subtract any down payment you intend to make if you wish, although this calculator automatically calculates PMI (private mortgage insurance) on the assumption that your down payment is less than 20% of the loan amount.
Another option is to seek preapproval from one or more mortgage lenders and see how much they are willing to lend you based on factors like your credit history and income. Or, you can work backwards, playing around with the loan amount until you come out with a monthly payment you are satisfied with.
- What is the loan term?
The term of a loan is the period during which the loan must be repaid. For mortgages, the term is often 25 or 30 years, but this will depend on the lender and the applicant. Generally, the shortest term that is offered for a mortgage is 5 years, while the longest is typically 40 years. Keep in mind that longer loan terms are usually only given to younger applicants.
- What types of mortgage interest are available?
Broadly speaking, there are two types of mortgage interest: fixed rate and variable or adjustable rate. It’s important to realize that, despite the name, fixed rate mortgages may not be fixed for the entire life of the loan; make sure you understand the lender’s terms of any loan you agree to. When you take out a fixed rate mortgage, the rate is guaranteed not to go up for the agreed period; it also will not go down. An adjustable rate mortgage, on the other hand, has an interest rate that varies according to the federal base interest rates on the credit markets, increasing and decreasing along with those rates.
- Which type of interest is better?
Any loan, especially long-term loans, has inherent risk due to the changing nature of federal interest rates. In the United States, when the Federal Reserve Bank changes the base interest rate to borrow money, it affects all lenders and loans. In a fixed rate mortgage, the lender assumes that interest rate risk; they agree to not raise your rate even if it becomes costlier for them to lend to you. With an adjustable rate mortgage, the borrower takes on some of this risk, and their rate will go up if federal rates go up. Importantly, their rate can also go down if federal rates go down, which does not happen with a fixed rate loan.
Neither is inherently better or worse. Fixed rate mortgages tend to have higher interest rates to protect the lender from interest rate risk. Historically, variable rate mortgages have been less expensive for borrowers, but depending on the economic climate, there is always a risk that the rate will go up, and it could go up significantly. It depends on the economic climate, how much value you place on peace of mind, and how close you are to the edge of what you can afford each month.
You should also ask your lender if there are any penalties for early repayment on either type of mortgage, which may sway your decision one way or the other.
- What factors affect variable interest rate mortgages?
Adjustable interest rates depend on the base rates established, in the United States, by the Federal Reserve. The Fed sometimes changes the percent of interest charged to lenders when they borrow based on the current economic climate. For example, interest rates are often raised in times of growth and inflation and lowered in times of economic recession. These changes will affect the interest rate on your adjustable rate mortgage, although your payment may or may not change (your monthly payment could remain constant, while a greater or lesser portion of it is allocated to paying interest versus principal).
- What is an amortization schedule?
An amortization schedule is a detailed breakdown of your periodic loan payments. In the case of monthly mortgage payments, it shows how much of your payment each month goes towards paying back principal and how much goes towards paying the loan interest. For the first several years of a mortgage, most of the payment will usually be allocated to interest, with only a small amount going to principal. As the principal is gradually reduced, less interest is accrued, and more and more of each payment will go towards repayment of principal, until the loan is completely repaid.