How to Use a Mortgage Calculator

The internet is packed with helpful tools for making important financial decisions, such as mortgage payments. Mortgage calculators are a prime example. You’ve probably seen many of these online. You may want to use this kind of calculator to estimate your monthly payments, decide if an adjustable-rate mortgage is right for you, or determine if you can pay off your mortgage early. Here are the different things you’ll need to know to calculate a mortgage and why they matter.

Home Price

You’ll need to enter the final price for your home into the calculator. If you haven’t purchased a home yet—or haven’t even started looking—you can always use an estimate. You can adjust the number to find the price range that will be right for you based on the final calculation.

Down Payment

Your down payment may be anywhere from 3% to 20% of the home’s price. If you qualify for a USDA or VA loan, you may not have to make a down payment. However, a down payment is usually in your best interest. If you can afford at least 20% as a down payment, you will have the added perk of avoiding private mortgage insurance (PMI).

Another bonus: the bigger your down payment, the lower your interest rates will be because the lender will not be responsible for financing as much of the house’s transaction. You should see this in the calculations.

Interest Rates

Your interest rate is calculated as a yearly percentage of your loan balance. So, for example, if the interest rate is 3%, you will have to pay 3% of your loan balance each year for the length of your loan. You will only pay interest on the portion of the loan you haven’t paid off yet.

Loan Term

Every loan is paid off over a different amount of time. The most common loan terms are 15 and 30 years. The longer the term, the lower your monthly payments will be. However, as you’ll see when using the mortgage calculator, you will often end up paying more overall if you choose a longer loan term like a 30-year loan. This is because the interest payments add up.

Location

Where you are plays a huge role in your mortgage payments, so most mortgage calculators ask for your zip code or state. This is especially important for determining your mortgage insurance payments. While the condition of the home and its age will also matter, the location is a concrete thing you can add to your calculation. The location also matters when calculating property taxes.

Home Insurance

Although you aren’t required by law to have homeowner’s insurance, it’s definitely helpful for your peace of mind in the event of a natural disaster or a theft. Plus, most lenders require home insurance as part of the loan terms. They want you to have this insurance as it also protects them from a loss. Some factors that go into how much you’ll pay in home insurance premiums include your location, credit, and home condition.

Still Need Mortgage Advice?

By playing around with these numbers, you can hopefully discover answers to some of your questions about how much home you can afford. If you still have questions about your mortgage payments and homeownership expenses, please let us know, and we will connect you with a local mortgage professional! With our extensive industry experience, there’s no better way to get all your mortgage-related questions answered.

Updated April 2024