Mortgage calculators can produce a lot of information. The monthly payment is a common question for borrowers. However, the millions of available calculators don’t always ask the right questions, and this can leave the borrower with incomplete or misleading information.
A basic mortgage calculator will ask for the loan amount, interest rate, and term. This will produce a monthly payment, including principal and interest. Some calculators may even list the amortization schedule, showing how the principal balance will reduce over the loan term.
This very basic information is necessary, but not enough. Mortgages are major financial obligations that should be carefully considered in comparison to other available mortgages, and in the context of the borrower’s personal circumstances.
Listed below are features of any good mortgage calculator. Please consider these when purchasing or refinancing real estate.
Tax & Insurance
Property taxes and homeowners insurance must be included in the mortgage calculation. This allows for more accurate comparison between the affordability of properties, and is critical for household budget planning. Even though these costs change annually, they are a significant component of home buyer costs.
Financing the closing costs impacts the interest rate. A calculator that includes the fees will produce an APR (Annual Percentage Rate). This is a more accurate indicator of the cost of the loan. The APR makes loan comparisons simpler, and can reveal lender tactics to mask high closing fees with a low initial rate.
Private Mortgage Insurance (PMI) is a monthly fee, in addition to the mortgage payment. It can be a significant expense and must be included in calculations.
Total Amount Payable
The output should include the total amount that will be paid over the course of the loan. This is another useful number for comparison. It can show how expensive one lender is over another, or how different loan terms can impact the total amount payable. A shorter term could save hundreds of thousands of dollars.
Personal Income & Credit Information
Taking your personal financial situation into consideration is the best way to see if the mortgage options are realistic. The best loan terms will mean nothing if you simply can’t afford the payment.
Budgeting for loan payments must acknowledge the highest possible payment under the terms of an adjustable rate mortgage. It’s risky to base a mortgage decision on a low initial payment, and may lead to an unaffordable mortgage very quickly.
Explore options on the fringe of your comfort zone. A shorter term, or a larger down-payment could significantly reduce the monthly payment, and the total amount payable. The best calculators will allow you to experiment with all the options.
Being aware of the right information to enter into a mortgage calculator is useful, actually finding a calculator that does all of this would be even better. The best way to integrate all of this information is by using a combination of available calculators. Here are some good ones:
Mortgage Calculator.org – Principal, Interest, Taxes, Insurance, & PMI
Mortgage APR - Advanced APR calculation
Mortgage Affordability - Includes Personal Income and Expenses
Mortgage ARM - Adjustable Rate Mortgage Calculator
Mortgage Extra Payments - Additional payments to Principal: Monthly, Yearly, One-Time