When you are buying a home, you need to plan your monthly mortgage payment. Taking out a house loan is a scary and exciting time for you, but you need to make sure that you get the right loan—the one that you will be able to pay off.
With a mortgage calculator, you can easily determine your monthly mortgage payment, including your loan’s principal, interest, taxes, homeowners insurance, and private mortgage insurance. This will allow you to plan your finances and agree on monthly payments that sit well with you.
Play around with this useful tool and see what the best mortgage for you is, when you should get it, and how much you will pay for it.
What Is a Mortgage Calculator?
A mortgage calculator is a tool that helps you estimate your mortgage payments and explore different scenarios when it comes to purchasing a home or refinancing an existing mortgage. It takes into account various factors such as the loan amount, interest rate, loan term, and potential additional costs like property taxes and insurance.
By inputting these details into a mortgage calculator, you can obtain information such as the monthly payment amount, the total interest paid over the life of the loan, and the impact of making extra payments or adjusting the loan term. This allows you to evaluate different loan programs, compare costs, and make more informed decisions about your mortgage.
Mortgage calculators are available in various forms, including online calculators provided by financial institutions, real estate websites, and independent financial tools. They are a helpful resource for individuals who want to understand the financial aspects of obtaining a mortgage and plan their budget accordingly.
How To Use A Mortgage Calculator
As we’ve already said, there are various mortgage calculators online, but we will talk about this mortgage loan calculator and show you how it works. It is free to use, and you can quickly check various things, such as:
- Monthly mortgage payment
- Total payment
- Total Interest
- Annual Payment
- Mortgage constant
First of all, you will notice stars next to input fields, and these are the required fields that you need to fill out:
Once you input everything, all you have to do is click Calculate to get results. Everything will appear below it. Some other options include ‘Reset’, ‘Amortization’ and ‘Calculate Loan Amount’ located in the upper right corner.
Note that some other calculators may include down payment amount, location, or some other categories. Before we move on to a few examples, let’s explain each of the fields here:
- Loan Amount: The amount of a loan refers to the total amount of money you plan to borrow for your mortgage. It is typically the purchase price of the property minus your down payment (if any) or the current balance of your existing mortgage.
- Interest rates: Interest rates are the percentages that the lender charges for loans. It represents the cost of borrowing money. You can usually find interest rates specified in the loan agreement or by checking with your lender.
- Loan Term: The loan term is the length of time you have to repay the loan in full. It is usually measured in years, such as 15, 20, or 30 years. The loan term affects the total interest paid and the monthly payment amount. Lower monthly payments are more typical for longer loans, while you can expect higher monthly payments when the life of the loan is shorter.
- Property Tax: Local governments impose property taxes based on the assessed value of your property. The tax rate can vary depending on the location. You can enter an estimated annual property tax amount to cover this category.
- Homeowners Insurance: Homeowners insurance is a type of insurance that protects your property and belongings from risks such as theft, fire, or certain natural disasters. The cost of homeowners insurance can vary based on factors like the property value, location, and coverage options. You need to enter the estimated annual insurance premium, if you have such insurance.
- Private Mortgage Insurance (PMI): Private Mortgage Insurance (PMI) is typically required if your down payment is less than 20% of the home’s purchase price. PMI protects the lender in case the borrower defaults on the loan. The cost of PMI is typically expressed as an annual premium, but for mortgage calculations, it may be entered as a monthly amount. Usually, you may be asked to pay private mortgage insurance if you have a down payment lower than 20%
- Homeowner Association (HOA) Fees: You might have to pay monthly or yearly HOA fees if you’re buying a property in a neighborhood under the control of a homeowners association. HOA fees contribute to the maintenance and management of shared amenities and common areas. Mortgage calculators may include an option to account for HOA fees in the monthly payment calculations.
Mortgage Calculator Examples
To illustrate how the calculator works, we’re going to provide you with a few examples. This way, you can see how to use the calculator creatively and based on the information you have.
How Much Income Do You Need for a $350,000 Mortgage?
Let’s say you want to get a $350,000 mortgage. You’ve found a home in that range that you want to buy, and you are eligible to get a loan. How much income do you need to have to pay off the mortgage without any hiccups? Also, what would your monthly payment be?
Let’s input everything into the calculator.
For the purpose of this example, we put the loan term at 20 years. You can also try it out with 15- and 30-year loans.
For the loan term of 20 years, your monthly payment would be $2,309.85, while the total payment would be $554,364. The interest rate we added here is 5%, but fixed-rate mortgages for 20 years usually come with a 7.20% rate.
If there are any other inputs that you want to include, you can easily do that. For example, if the property price is $350,000 and you have a down payment of $21,000 (6%), you can enter the property price as $329,000 and check the results again. Adding property taxes, insurance, HOA fees, and private mortgage insurance (PMI) will change the monthly mortgage payment but give you a more accurate assessment.
How Much House Can I Afford With a $2,000 a Month Mortgage?
Another use of the mortgage calculator is to tell you how much house you can afford. Try adding different property price inputs and loan amounts to get the monthly payment. For the previous example, we added a $350,000 loan, which resulted in $2,309 a month.
Based on that, it is fair to say that with $2,000 in monthly mortgage payments, you can afford a home that costs anywhere between $250,000 and $300,000. You can play around with the calculator and check out different things.
What Salary Do I Need for a $600,000 Mortgage?
With a little bit of creativity, you can use the calculator to estimate not only your monthly mortgage payment but also your desired income. All you need to do is calculate the monthly payment and the total payment first on a home that is $600,000. You’ll get something like this:
After that, consider the down payment. Unfortunately, this calculator doesn’t have a down payment option, but you can take that into consideration before you enter your input. Let’s say that the down payment is 20% (equal to $120,000) and that this is something you have saved.
Without the down payment, your monthly mortgage payment is $3,221; with the 20% down payment, your monthly payment drops to $2,576,74.
But this is when the real financial planning starts. Take into consideration your spending, savings, and lifestyle. For a $600,000 mortgage, you need to earn around $90,000 a year before taxes. While you need to take different things into account, the calculator is a good starting point to determine your monthly payment and see where to go from there.
As for financial planning, we’ll show you how you can be effective and apply the system called Lifestyle Banking to pay off your mortgage loan more quickly and efficiently.
But first, you need to understand what you pay when you pay your mortgage.
Typical Costs Included in the Mortgage Payment
When you are paying for your mortgage, you need to know what you are paying for. To better understand how mortgages work, we’ve broken them down into their components.
- Principal: The amount you borrowed from the lender.
- Interest: What the lender charges you to lend you the money. The lender can be a bank or an insurance company.
Most of your monthly payment goes to principal and interest, but there are also property taxes, homeowners insurance premiums, and mortgage insurance, which kicks in if your down payment is less than 20%.
Mortgage Payment Formula
Calculating a mortgage as well as the monthly payments can be done manually. There’s a formula you can use to calculate your monthly mortgage payment, and it looks scary, but it isn’t that difficult to use:
- M = The total monthly mortgage payment
- P = The principal loan amount
- i = your monthly interest rate
- n = number of payments over the life of the loan
All you need to do now is change the letters with the details to get the mortgage payment information. We always recommend using a mortgage calculator for its speed and precision, but in case you ever need an alternative, you know what to do.
When Should You Use a Mortgage Payment Calculator?
There are various instances in which you can use the calculator, and here are the five most common ones:
Planning To Buy a Home
If you’re planning to buy a home, the calculator can help you estimate your monthly mortgage payment based on different loan types, interest rates, and loan terms. This can help you determine a budget and assess affordability before you start house hunting.
If you’re comparing different mortgage options from various lenders, the calculator can help you compare monthly payments based on different interest rates and loan terms. This can assist you in evaluating the overall cost and affordability of each option.
Evaluating Refinancing Options
Paying a mortgage is a long process, and refinancing isn’t uncommon. When you refinance the existing mortgage, the calculator can help you determine whether refinancing would lower your monthly payment or the interest rate. By inputting your current loan details and potential refinance terms, you can assess the potential savings or benefits of refinancing.
Budgeting and Financial Planning
The calculator can be a useful tool for budgeting and financial planning. By knowing your estimated monthly mortgage payment, you can factor it into your overall budget and ensure that it aligns with your financial goals and obligations.
Preparing for Changes
If you anticipate changes in interest rates, loan terms, or other factors that can impact your mortgage payment, a mortgage payment calculator can help you prepare and understand the potential impact on your budget. For example, if you have an adjustable-rate mortgage (ARM), you can use the calculator to estimate future payment amounts based on different interest rate scenarios. With an adjustable-rate mortgage, the interest rate changes after the initial fixed period.
FAQs About Mortgage Payments
Mortgages are complicated. We’ve shown you how to use the calculator to your advantage and when to use it exactly. But now, let’s answer some of the common questions that you might have about mortgages.
How Can I Reduce My Monthly Payments?
A lower monthly payment! Who doesn’t want that? Homeowners may inquire about strategies to reduce their monthly payment, such as refinancing to a lower interest rate, extending the loan term, or removing private mortgage insurance (PMI) after reaching a certain equity level.
With the fixed mortgage rate, it might not be possible to reduce the monthly payments, but this is something you should check with your mortgage broker.
What Happens If I Miss a Mortgage Payment?
Individuals may be concerned about the consequences of missing a payment, including late fees, potential damage to credit scores, and the possibility of foreclosure. Ideally, you don’t want to miss the mortgage payments, no matter what loan type you take. But this is why you need to use the online mortgage calculator and accept the mortgage loan you can pay off.
Can I Pay Off My Mortgage Early?
Homeowners who wish to pay off their mortgage sooner often ask about the possibility of making extra payments or increasing their monthly payments to accelerate the payoff timeline. You can usually pay upfront, but we always recommend checking with your mortgage lender before you make any extra payments.
What Is an Escrow Account?
Some individuals seek clarification on the purpose and management of an escrow account, which is a designated account used to hold funds for property taxes, homeowners insurance, and sometimes other expenses related to the property.
The mortgage lender will require you to open an escrow account, especially if your down payment is lower than usual. It is possible to get a mortgage without an escrow or close your existing account, but this depends on the individual case.
Can I Change My Payment Due Date?
Borrowers may inquire about the possibility of changing their mortgage payment due date to align it with their income schedule or financial preferences. However, don’t count on it. You are required to make a payment each month.
Use Lifestyle Banking to Finance a Home
Now that you know how to use a mortgage calculator, it is time to take a step forward. A calculator is nothing more than a helpful tool that can help you plan your finances and mortgage calendar. But you are the one calling the shots. So, what is Lifestyle Banking and how can you use this system to pay and recapture your mortgage?
Lifestyle Banking is a strategy that uses a whole-life insurance policy. A whole-life insurance policy can be used for many other things other than insurance. All of that is thanks to the cash value component. How does it work?
As you pay your premiums monthly, your cash value grows. This is the money that you can use over time. But you won’t.
Instead of that, you will use the money as collateral and ask your insurance company for a loan. This is the money you can use for your investments, mortgage, etc. As you pay it back, you will also pay yourself interest and recapture part of the money that you spent.
Does this sound confusing?
We’ve explained it all in our 1-hour free masterclass! You can learn everything about Lifestyle Banking and have your questions answered!