Having a place to call your own — well, there’s nothing quite like it. But unless you’ve got hundreds of thousands of dollars sitting in your bank account, you’re going to need a loan to buy a home. Mortgage loan calculators are an essential part of this process!
Using the right mortgage loan calculator will give you a clear picture of what you’ll be paying each month. Arguably more important, you can use these mortgage calculators to explore different loan variables. This can help you determine the best loan (amount, term, rate) for you.
When to use a mortgage loan calculator
The ideal time to use a mortgage loan calculator is well before you’ve settled on a house. When you think you’ll soon be ready to buy, I recommend sitting down with your finances and messing around with the various features in an online mortgage calculator.
For example, let’s say you know you want a two-bedroom townhouse in a particular town. If you have a rough idea of what those sell for (any real estate site will tell you that), enter those values into a mortgage calculator. Using the different variables, you’ll find out pretty quickly whether or not you can afford to buy that type of property at this time.
This is also a great time to start getting your financial house in order overall.
The journey to homeownership is a major process and you’re going to have to verify your assets with a lender.
These financial calculators can help you organize your money and make sure you’re in the best financial position to buy a home.
How to use a mortgage loan calculator
Once you’ve decided that you are, in fact, ready to buy a home, a mortgage loan calculator will be a very helpful tool in the process.
Individual mortgage calculators will vary, but in general, all of them will have a place for your principal, interest rate, and down payment.
The more detailed mortgage loan calculators will include other additional factors that make the estimate more accurate. For example, will you have to pay PMI (private mortgage insurance)? If so, that will affect your monthly payment.
Careful – it’s not just your mortgage loan that makes up your monthly payment.
The best mortgage loan calculators will actually factor in variables beyond just your mortgage. Many people don’t realize this until they purchase their first home: your monthly “mortgage” payment actually includes the principal, the interest rate, and something called “escrow.”
Your monthly escrow payments go into a separate escrow fund. Your homeowners insurance premiums and property taxes are typically paid from this fund. Sometimes other things may be included as well, depending on where you live.
Understanding this cost is important because it can be quite large. For perspective, I just calculated mine for this article.
A full 42% of my monthly payment goes to escrow! Your escrow payments could be higher or lower depending on your tax and insurance rates.
The best mortgage loan calculators
My favorite mortgage calculator is from MortgageCalculator.org. It’s simple and straightforward but includes a ton of relevant information. By incorporating variables like homeowner’s insurance, PMI, HOA fees, etc., this loan calculator yields a more accurate monthly payment.
This particular mortgage loan calculator also lets you see how much you’ll pay over the life of the loan (which is both enlightening and terrifying).
I also like this calculator from Nerdwallet because it prepopulates a lot of information for you. Once you enter the house purchase price, it fills in everything else automatically.
You can adjust those values (and you should, assuming you know them). Still, it’s nice to have some reasonable estimates to work with, especially if you’re new to the home-buying process.
Trying to decide between two different loans?
Once you’ve found the right home for you and started the loan application process, you’ll still have some financial decisions to make. Even though you’ve selected a lender, they’ll probably offer you several different loan options. A few things you’ll have to decide on:
How long should the mortgage term be (15 and 30 year mortgages are the most common)?
Should you pay points to get a lower rate?
Should you accept a higher rate with fewer points or no origination fee?
In that case, Better’s fixed-rate mortgage loan comparison calculator will be helpful. You can enter the values for two different mortgages and compare them. This will help you choose the best mortgage for you.
Preparing your finances for the home buying process will go a long way
Once you’ve found your dream home, you’ll have a lot on your plate. There are contract negotiations, inspections, and a whole mountain of paperwork to sign.
Doing your financial research upfront and using mortgage loan calculators to prepare will save you a ton of legwork down the line.
Good luck and happy house hunting!