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How to Mortgage Loan Calculator works

30.06.2021
962
7 min.

Customers using this calculator are able to determine monthly payments amount and draw up an approximate repayment schedule. In addition, the volume of interest as well as an estimated principal sum can be clarified. Prepayment sums should be entered in order to assess their influence on a mortgage.

How to Mortgage Loan Calculator works

Definitions

An amount of a real estate credit

An initial or expected balance on a home loan.

Duration in years

That is the loan repayment in years. The most common duration is between 15 and 30 years.

Monthly instalments

Monthly charges of principal and interest.

Percentage rate

It should be noted that a rate of interest differs from a per annum percentage rate that includes various charges like mortgage insurance, processing fees and also considers an initial payment made during the mortgage receiving. A per annum percentage rate is generally higher than a simple one.

Total percentage

The sum of interest redeemed over the mortgage entire term. No principal debt prepayment is assumed at the total sum of interest.

Total payouts

The sum of all monthly instalments within the mortgage entire term. No principal prepayment is assumed at the total payout.

Type of preliminary payment

Prepayment frequency. Possible options include: none, monthly, yearly and lumpsum instalment.

Prepayment sum

This amount is applied to a principal balance of a mortgage credit in accordance with a prepayment type.

Prepayment start

It reflects a number of instalments upon prepayment start. Regarding a lumpsum payment, this is the number including this lumpsum instalment. Issuers assume that all principal prepayments will be made timely and included in the percentage calculation for the following month. Provided prepayment with a lumpsum payment for an instalment numbered zero then it is considered the preliminary payment to start prior the first loan disbursement.

Saving

This is the total sum of interest to be saved while a mortgage prepayment redeeming.

Depreciation report

The way of a payment scheme's display in the report can be selected. Instalments along with balances are summed up annually in such reports. Additionally, every payment made within the whole loan term is displayed on a monthly basis.

The ways to calculate mortgage instalments

The following formula affords to make a manual calculation of monthly charges:

Equation for mortgage instalments

M = P [r (1 + r) ^ n / ((1 + r) ^ n) -1)]

  • Where M = monthly mortgage instalment
  • P = loan principal
  • r = monthly percentage rate. Lenders provide a per annum rate so it needs to be divided by 12 (which is the months number within a year) in order to calculate a monthly rate. For example, a rate of interest is 6% means a monthly rate is 0.005 (0.06/12 = 0.005).
  • n = number of instalments during the credit term. The years quantity according to the loan term needs to be multiplied by 12 (which is the months number within a year) in order to specify the total number of instalments to be made. For instance, 360 payments are required for a fixed 30 years mortgage (30x12 = 360).

Such formula allows to estimate what dwelling is accessible. In the meantime, the calculator of mortgage payments makes the assessment easier and help realize whether the money invested is enough and whether the credit term should be adjusted.

Attention! It's always worth evaluating offers of multiple lenders to ensure you will get the best deal.

How to utilize the calculator for mortgage payments

Irrespectively at what stage of home purchasing process a customer is currently, a mortgage monthly cost estimation is an important step in determining an actually affordable and convenient for paying option. This instrument enables to evaluate various scenarios and figure out a loan type, term as well as initial payment appropriate for a specific financial situation.

Below is the guide for utilizing the calculator for mortgage payments with PITI:

  • The first step is to enter the mortgage sum. That is a dwelling value deducting an initial instalment. For example, an applicant intends to purchase a house for $ 250,000 and save 20%. The mortgage sum will be $ 200,000. Provided a specific home is considered then this price should be used as the basis. In other cases, it is necessary to enter an amount reflecting the range of lodging prices within the area.
  • Enter a term in years.

    Note! Although the term of 15 and 30 years is the most common it is possible to obtain a mortgage for a different repayment period.

    As a rule, increase of the mortgage discharge duration results in monthly mortgage instalments decreasing but more interest payments will have to be made.

  • Include a rate of interest. It should be based on a current mortgage one. Customers should remember that rates change frequently and the one received depends on several factors including credit rating, property location, initial payment amount and more.
  • Enter an estimated per annum real estate tax. Such estimation is often included with the properties listing but this information can also be found on the website of the county's tax inspector where the home is located. In addition, this data can be provided by a credit issuer or a real estate agent.
  • Include estimated annual homeowner's insurance. The rates depend on location and structure but an issuer or a real estate agent is able to provide an assessment of a per annum instalment. Such website as Insurance.com offer to estimate the homeowners insurance cost based on diverse variables as well.
  • Check various scenarios with different mortgage sums and terms to see what effect it has on monthly payments. In order to see the influence of prepayment on interest to be paid over the loan term it is necessary to use the prepayment section.
  • Following steps

    The mortgage calculator is a really useful tool for estimating monthly instalments and it provides a better understanding what they include. When this information is specified the next step is to get a mortgage preapproval from a lender.

    Important! By submitting an application customers are given a more definite comprehension of an affordable dwelling upon the check of employment, income, credit score and financial circumstances conducted by the lender. This also allows to clarify the total loan sum to be paid.

    The mortgage calculator: alternative use cases

    Most people apply this calculator to measure a new mortgage instalment but it can serve for other purposes as well.

    Below you can see some more options:

    Mortgage prescheduled repayment is planned.

    Thanks to the “Extra payments” feature of Bankrate mortgage calculator users can check the possibility of the term shortening and also more funds saving by reimbursing extra money against the loan principal. Such additional charges can be made monthly, per annum or even one-time.

    For savings calculation a user needs to follow the link “Amortization / payment schedule” and enter an expected amount in one of the categories of payment (monthly, per annum or one-off), then click “Apply additional payments” in order to see an interest to be accrued as well as a new due date.

    Doublecheck whether ARM surpasses the risks

    A lower starting rate of interest on a real estate credit with an adjustable rate (shortly ARM) can seem to be really tempting. While some borrowers can find ARM to be suitable, others may realize that monthly instalments cannot be significantly cut by a lower starting rate.

    In order to get an idea of the funds amount that can be saved initially it is better to enter the ARM percentage into the mortgage calculator and set the maturity at 30 years. The next step is to compare these payments to those determined when the rate for a typical fixed home loan for 30 years was entered. It can confirm expectations regarding either ARM benefits or whether risks outweigh the potential benefits.

    When is it better to opt out of a real estate credit private insurance

    The mortgage calculator can be used to determine when 20% of home equity will be available. This is the magic number that affords to require a lender to waive private insurance claims. Provided less than 20% were invested while a home purchasing a customer will have to redeem an additional monthly fee together with a regular mortgage instalment in order to offset the lender's risk. Once having 20% of the capital that commission will no longer be applied that means a customer is able to save money.

    A client just needs to enter the initial mortgage amount and the date of closure and click “Show repayment schedule”. Then the initial mortgage needs to be multiplied by 0.8. To see when the 20% percent capital will be reached the result should be compared to the closest number in the right-most column of the depreciation table.

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