How To Use A Mortgage Calculator
Your basic mortgage calculator shows you three things: your principal and interest payment, the amount you will have paid over the life of the loan, and your dropping balance over time as you make your payments, known as your “amortization schedule”.
Those are all helpful things, but it’s what YOU do with this information that makes the calculator even more useful.
Here are things you may not know you could do with a mortgage calculator.Verify your new rate (Feb 22nd, 2019)
Avoid The “Refinance Penalty”
Refinancing your mortgage, even to a loan with a lower interest rate, can still cost you more in the long run if you’re not careful.
That’s because unless you refinance to a shorter mortgage term, you’re restarting the clock on your repayment.
If you refinance a 30-year home loan after five years, and replace it with another 30-year loan, you extend your repayment to 35 years. That offsets some or all of the benefit of your refi.
A mortgage calculator can help you refinance smarter. To fully benefit from your refinance, simply enter your remaining principal balance as your purchase price, a down payment of zero, the refinance interest rate, and the number of years required to retire your mortgage on time.
For the above example, your term would be 25 years (the 30-year term minus the five years already paid).
The resulting payment is the amount you’d send in each month — your regular payment, plus an additional principal reduction.
Estimate Your Future ARM Payment
If you don’t expect to keep your home and mortgage for many years, a 5/1 ARM can make sense. Its initial interest rate typically runs about one percent lower than that of a 30-year fixed loan, and its rate is fixed for the first five years.
But what if you end up keeping your home for six or seven years? Could your ARM become un-affordable?
You can use the mortgage calculator to look ahead.
Input the terms of the ARM you’re considering. Click “View Full Report” and write down what your balance will be in five years. Ask your lender what the loan’s caps are – most 5/1s allow a rate increase of no more than two or three percent over their start rates in Year Six.
As of this writing, you can find 5/1 ARMs at 2.25 percent, and we’ll use a $200,000 loan amount as an example. The principal and interest payment in this case is $764, and the balance after five years is $175,290.
In comparison, the payment for a $200,000 30-year fixed loan at 3.25 percent would be $870, and its balance after five years would be $178,614 – in five years, you’d save $9,684 with the ARM.
But what happens in Year Six?
Go back and input a new loan — your purchase price equals your loan balance, $175,290 (zero down payment), your term is the remaining 25 years of your loan, and your rate is the worst case scenario — the start rate plus your maximum adjustment.
If your cap is two percent, your highest rate in Year Six is 4.25 percent, and your maximum payment is $950.
Note that this is your worst case scenario. To get something that’s perhaps more realistic, ask the lender what rate the loan would be if it were resetting today. Use that rate with a 25-year term.
If the payment is unacceptable to you, or if the worst case scenario gives you nightmares, a 5/1 might not be the right loan for you.Verify your new rate (Feb 22nd, 2019)
Estimate Your Savings With Accelerated Payments
It’s easy to use a mortgage calculator to estimate what you’d save by pre-paying your mortgage.
Input your loan amount and interest rate, and note the resulting principal and interest payment.
We’ll use the 30-year fixed example from above — with a $200,000 balance and a 3.25 percent rate. That payment is $870, and over 30 years, if you click “View Full Report,” you’ll see that you’d pay $113,000 in interest over 30 years.
Next, you’ll change the term to something shorter than 30 years – 25 years, for instance. You’ll see that paying $975 a month retires your loan five years early, and saves you $21,000 in interest.
Note: If you’re looking at paying off a 30-year loan in less than 25 years, consider a 20-year or 15-year fixed rate mortgage. They typically offer lower interest rates than 30-year loans, which makes your extra payment go further.
As of this writing, for example, lenders are offering 3.0 percent rates on 20-year loans to highly-qualified applicants. The payment for our sample loan is $1,100 per month, and the total interest paid is just $47,000 less than the 30-year loan.
Mortgage calculators can help you do many things – see how much house you can afford, compare different mortgage products, and visualize pre-payment strategies – all important for successful homeownership.
What Are Today’s Rates?
A mortgage calculator tells you how much a low rate can save you. The difference of just one-quarter of one percent can make a big difference.
Get a rate quote, and lock in today’s ultra-low rates. That’s your first step to getting a great mortgage value in today’s rate market.Verify your new rate (Feb 22nd, 2019)