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Home ownership is one of the best investments you can make, as long as you do it right. Using a mortgage calculator can help you figure out your monthly payments and make the right home buying decision.

But what exactly can such a calculator do? What role does it play in your taking out a mortgage? Below is a comprehensive guide to answer these questions and more.


Why use a mortgage calculator?

A mortgage calculator can show you your starting monthly payments as well as the total payments you'll make towards a mortgage.

More importantly, it shows you how much interest you'll pay throughout the life of your loan giving you an idea of what you're signing up for.

Getting Started

It's best to take advantage of this great tool before you shop around for your dream home.

To get started, you'll have to add different details, like the mortgage amount, the term (in years), and your interest rate.

By using a mortgage calculator now, you'll have a better feeling for how much your home purchase will cost.

Other Uses

Want to save? Add "Prepayments" into the mortgage calculator to see how much you can shorten your term and save by putting extra money towards your mortgage balance.

What is a mortgage loan?

At their core, these are loans allowing borrowers to cover the costs of buying a home. They're long-term financing programs that make home ownership possible.

Consider this: June 2018 sales price of new homes in the country averaged $394,300.

As you can see, unless you have hundreds of thousands of $$ in your bank account, you'd need a mortgage. Again, since these are long-term loans, you have many years to pay the bank or mortgage lender back.

That doesn't mean that the longest "term" offered is already the best option. Granted, this means lower payments, which can also be helpful. But remember, the longer you stretch out your payments, the more you'll pay in interest.

This said, it's always best to figure out how much your potential mortgage payments would be before you sign the dotted line.

What goes into a mortgage payment?

A mortgage payment is the money you pay back the lender, often made once every month.

There are other payment terms though, such as bi-weekly mortgage payments. In any case, if you have a fixed-rate mortgage (FRM), then payment would remain the same throughout the life of your loan.

As for what goes into a mortgage payment, there are three basic elements:


This refers to the amount of money you'll borrow.


    Say the home you want to buy is worth $200,000, and you already saved up $20,000.

    You can use the latter to make a down payment so that you only have to borrow $180,000.

    The $180,000 is the principal loan amount. That's what the lender will place the interest on.


Since we're talking huge amounts of money here, it makes complete sense lenders want "compensation" for the risk they're about to take. They aren't 100% sure they can get their money back, so they place an "interest rate" on the principal.

Interest is the amount of money you pay after the lender applies the mortgage interest rate. Make sure you don't confuse mortgage rates with APRs (annual percentage rates).


    Most mortgage rates are only one digit with decimals. An example is the most recent average rate of around 4.50% for 30-year FRMs.

    Say you'll borrow $200,000 with a mortgage rate of 4.50% and a term of 15 years. You can then expect to pay around $1,529.99 your first month.

    Additional Considerations

    Depending on the home you buy, you may also need to pay homeowner's association dues, hazard insurance, taxes and similar fees.


This is the length of time given to you to pay off your entire mortgage.


    If you take out a 15-year mortgage, you have a term of 15 years. That means you have 15 years to pay back what you owe the lender. That gives you less time, but that also means you can be debt-free sooner.

    If you choose a 30-year mortgage, the lender will spread your mortgage schedule payments over 30 years. That means lower payments every month, but it also means being in debt longer.

    Also, the longer the term, the more expensive the loan, since a lot of your money goes only towards interest.

    Additional Considerations

    Which type of mortgage is best for you depends on your unique situation. It's for this reason you should always explore all your options.

    Start by comparing mortgage offers from different mortgage lenders.

Which factors influence mortgage rates?

Now that you know what goes into mortgage payments, you're wondering how lenders get those interest rates in the first place.

Lenders don't come up with this number out of thin air. They use many different factors, some of which they all consider, others they base on their own rating model.

As for the common factors they consider, here are some of them:

Credit Score

The higher your credit score is, the more chances you have of getting a lower interest rate. That's because your score indicates how reliable you are to pay back your loan.


In many cases, loans with shorter terms come with lower mortgage rates.

That means you'll pay less for interest, which also means you'll spend less towards your mortgage. But because you have less time to pay back the loan, you have to compensate by paying more every month.

Type of Loan

The fixed- and adjustable-rates are just two main types of mortgages.

Adjustable-rate mortgages often have lower initial rates. But there's a limit to the number of months/years the rate stays the same. After this period, the rate can already change based on how the market does.

There are many other types of loans, the interest rates of which also vary. There's the government-backed FHA loan, for instance. It comes with a lower rate and down payment, but you'll need to get mortgage insurance with it.

Last words?

Using a mortgage calculator is a great first step!

Remember to also budget for utilities, maintenance, emergencies, and renovations in the future.

Make sure you also check our other mortgage-related calculators to ensure you're making the best decision for your situation.

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