A mortgage is a long-term loan that you borrow to purchase a house, land, or any property. The mortgage loan calculation is based on 4 components of payments:
- Loan Principal
- Loan Interest
- Property Taxes
- Mortgage Insurance
The monthly mortgage payment calculator includes all components in a single monthly payment. A mortgage calculator reconciles monthly bills and charges of principal, interest, tax, and insurance together and calculates a total amount that is to be paid off once a month. This elevates the stress to calculate separate bills and track down the due dates for their payment.
Loan Principal
The loan principal is the amount that you borrow from a bank or lender to purchase a house. Choose the right lender that suffices your unique needs and suits your emotional and logistical data analytics.
Mortgage Loan Calculation
Mortgage loan calculation is structured in a way that the principal is returned to the lender and is increased with each monthly mortgage payment for a few initial years. This in turn reduces the interest part as big chucks of loan is repaid. For example, the payment in the first year holds more interest than principal, but with each passing month it goes downward and ultimately the final year has more principal than interest.
Interest
Interest is the charge that the bank applies to loaning you the money. The interest rate varies and depending upon the type of loan, risk involvement, property location, down payment, and credit score, you can have different interest rates. Mortgage interest rates can directly increase the monthly mortgage payment of your loan. The mortgage payment calculator calculates your monthly mortgage payment on different interest rates and helps you to choose a loan that best fits your needs.
Taxes
Property or Real estate taxes are assessed by government agencies and have to be paid on a yearly basis. But you can pay these taxes as part of your monthly mortgage payment also. However, if have set up an Escrow account, the monthly tax and insurance go there and at the end of the year it is paid off. Generally, lenders take care of taxes and insurance, and at the end of the year, the balances are adjusted. The mortgage calculator reconciles the Escrow account and mortgage payment and brings out the due payment, if there is any.
Insurance
Like taxes, the insurance payment is also a part of the monthly mortgage payment. Property insurance includes financial reimbursement for the reconstruction and repair of your damaged property. It protects you from any damages caused by fire, theft, or mishaps. You can keep aside a monthly insurance allowance in the Escrow account or pay it with a monthly mortgage at your ease. Mortgage payment covers two types of insurance:
- Property insurance protects you from fire, theft, or any damages caused by a person. It includes repairing, reconstruction, and rebuilding costs of the property.
- Private mortgage insurance (PMI) is mandatory for borrowers who make less than 20% of the down payment of the purchase price. If somehow you are unable to repay the loan, PMI insurance by default goes to the lender. It minimizes the default risk on the loan and protects the interest of the lender.
How to Calculate Your Monthly Mortgage Payment?
The monthly mortgage typically includes repayment of the loan principal and monthly interest on the outstanding balance. You may have to put tax and insurance amounts into an Escrow account then the total monthly mortgage payment would increase.
The mortgage calculator breaks down a loan amount into consistent monthly mortgage payments for an easy-to-use payment option.
Your mortgage payment starts the next month after a month when you purchased a home. If you buy a home on Nov 1 or any date of November, the first payment of the mortgage will be due on January 1.
There are several good online mortgage calculators available that calculate the right mortgage amount according to your financial compatibility.
How the Mortgage Calculator Helps in Paying Off Your Loan?
A mortgage calculator helps you to estimate mortgage loan payments and mortgage interest rates and determine how much you can pay for the housing budget.
You have to estimate your housing budget, income, credit score, revenues, etc before deciding on mortgage loan calculation and loan tenure.
The mortgage payoff calculator helps you to determine the loan terms for paying off your debt. If you want a lower monthly payment, you have to pay more interest on the borrowed money because you have to pay it for long term. If you opt for a short time, then the interest is reduced but the monthly payment is increased.
Follow the steps to calculate the mortgage monthly payment:
- Enter all details in the mortgage calculator and compare various scenarios by changing the mortgage interest rate and loan terms.
- Tally monthly mortgage payments with your income and expenses to get the real picture of your financial affordability.
- As per your financial situation, you can choose a fixed mortgage interest rate or adjustable mortgage interest rate.
- After deducting a 20% down payment, it calculates monthly mortgage payments that include loan principal, interest, tax, and insurance fees. The majority of the mortgage part covers interest payments.
What Are the Ways to Calculate a Monthly Mortgage Payment?
There are two ways to calculate a monthly mortgage payment:
- Formula
- Mortgage Payment Calculator
Mortgage Formula: If you are good at maths and familiar with complex equations, you can go ahead with the mortgage calculating formula. By changing principal, mortgage interest rate, and loan terms you can break down loan amount into convenient monthly payments.
It is easy to change the variable at any point in the spreadsheet formula and get the desired result accordingly. You can compare different payment scenarios. An Amortization table provides a detailed look based on four payment factors of PITI.
M = P [ I(1 + I)^N ] / [ (1 + I)^N − 1]
P= Principal loan amount
I= Interest rate charged annually. You can divide this by 12 to get the monthly interest rate.
N= Number of payments in loan tenure. If the loan term is 30 years, the number of monthly payments will be 30*12= 360 payments.
The formula works well with Adjustable-Rate Mortgage (ARM) where after 5 years of fixed interest rate, you can adjust it as per your needs. When the mortgage interest rate is flexible and you can get compatible mortgage loan payments instead of consistent mortgage payments. However, lower interest rate increases the loan terms and you would end up paying extra money to pay off your loan principal.
The mortgage payoff calculator does a comparative analysis of ARM interest and conventional interest rates and gives you an idea about your savings.
Enter the ARM interest rate in the mortgage calculator for a 30-year term and compare the mortgage payments with the payment of the conventional mortgage interest rate for 30 years. You can check whether ARM is working for you, in the long run, to pay off mortgage loans without adding much burden to your finance. The mortgage calculator provides you an estimated view of how much you can expect to pay in your monthly mortgage, including taxes and insurance.
Types of Mortgage Calculators
There are three types of mortgage calculators that determine the mortgage payments according to your unique financial situation and goals.
Purchase Calculator: A purchase calculator or home affordability calculator does comparative analysis and figures out how much loan you can pay as a down payment and how much interest rate you can afford for monthly payments. It estimates your credit score, income, and other debts and determines the loan amount, minimal down payment, and competitive interest rate.
Refinance Calculator: Refinance Calculator estimates your home value and determines how much cash you can take out from the existing mortgage balance. Refinance calculator compares the monthly payment of your current loan to the proposed payment on the new loan side by side and calculate the estimated value of refinancing your home. Then the Amortization table compares the current mortgage balance and determines how much value of your home you can refinance for taking another loan.
Amortization Calculator: The amortization calculator breakdown the mortgage payment into loan principal and interest payments. At the beginning year, more amount goes for interest payments than the principal. If you pay extra on monthly mortgage payments, the loan principal is adjusted and accordingly reduces the further interest on the monthly mortgage payment.
You have to input the values of loan amount, loan terms, interest rate, and the current financial state. It calculates your regular mortgage monthly payments. The respective graphs at the right side, help you to understand and manipulate your payment analytics by increasing down payment, paying additional amount, or opt for adjustable-rate mortgage.
How to Estimate Affordable Mortgage Monthly Payments?
Your mortgage monthly payments depend upon the price of the home, down payment, interest rate, course of the mortgage term, property tax, insurance, etc.
To calculate the estimated mortgage monthly payments, enter suitable values in the respective fields of the mortgage calculator.
- Enter the current value of your home in the Home Price field.
- Enter the down payment in the Down Payment section. This value is in cash or in the percentage of the purchase price of the house.
- The next value is the Loan term. Usually, it is for 30 years but you can adjust the loan tenure to 20, 25, or 10 years and the mortgage calculator adjusts the repayment schedule accordingly.
- The last field is the Mortgage Interest Rate. Mortgage calculator takes the current interest rate but you can adjust the interest rate according to your affordability.
- The monthly payment breakdown result is displayed on the right side. It shows principal and interest along with property tax, insurance, and other fees and calculates your mortgage monthly payment.
Explore all channels, calculate estimated mortgage payments, and chose the right mortgage for your dream home.
Mortgage takes away your interest to give you freedom for a Lifetime!
