Several factors impact your mortgage, including the borrowed amount, length of the loan, interest rate, taxes, and insurance.
A monthly mortgage payment calculator can help you understand your loan details and give you the information necessary to make strategic financial decisions. Almost 90% of buyers financed their homes in 2020. Before you start searching for mortgage calculators online, let’s look at the variables that establish your payment.
Monthly Mortgage Payment Calculation
Your monthly mortgage payment consists of four key components: principal, interest, taxes, and insurance.
The principal is the total amount of money you’re borrowing. If your loan is $300,000, that is your principal, and part of your monthly payment will go toward paying it off each month.
Interest is the amount the lender charges for borrowing the money and is determined by the rate you and your lender agreed on. A fixed rate will not change throughout the loan; an adjustable rate can.
Taxes (set by your local government) are determined by your home’s value. The amount due can change annually when your home is reassessed. Your yearly property taxes are divided by 12-months and collected as part of your monthly payment. This money is held in escrow and is used when your taxes are due.
Insurance refers to private mortgage insurance (PMI), which protects your lender if you default on your loan. It is typically required if you put less than 20% down.
Using a Monthly Mortgage Payment Calculator
As you start to work with monthly mortgage payment calculators, here are some tips to keep in mind:
#1. Consider Your Budget
The most important number to plug into any monthly mortgage payment calculator is the loan’s principal amount. If you already have an idea of your total budget, it’s a good idea to put in a number at both the high and low ends of your range to see how variations in your offer price could impact your monthly payment.
#2. Know Your Payback Period
A reliable mortgage calculator will also ask you for your payback period, which is the amount of time you plan on financing your home. In most cases, this is 15 years or 30 years. This decision will have a significant impact on your monthly payment, since the total cost of your loan will be divided by the number of months you’re financing.
#3. Understand the Interest Rate
Another critical factor to consider is the current interest rate. Interest rates are always fluctuating, so it’s important to know how various rates impact your monthly payment.
When you input different values into a mortgage payment calculator, such as ZIP code or down payment amount, you may find that the monthly cost doesn’t change too drastically. However, even a slight decrease in interest rate can save you tens of thousands of dollars over a 30-year loan. Keep this in mind as you’re reviewing mortgage rates and terms.
#4. Find the Right Calculator
When you’ve gathered all of your numbers, it’s time to find a monthly mortgage payment calculator that fits your needs. Some calculators only offer a glimpse of your loan’s components, while others go above and beyond to deliver precise detail.
Buyers should search for a mortgage payment calculator that considers the type of loan (whether purchase or refinance, the property value, the loan amount, the initial down payment, the location, the loan’s term, the borrower’s current credit score, the property type, and the way the home is being used (whether a primary or second home).
Using a robust mortgage payment calculator enables you to understand your potential mortgage options. This makes it possible to plan for the month-to-month realities of your future mortgage accurately.
#5. Crunch the Numbers
Once you have your budget, your payback term, and your interest rate, you can input the numbers to generate a monthly mortgage payment estimate. Remember to play around with the numbers to give you a better idea of how each item impacts your payment. This will help you align your home search with your financial capabilities.
#6. Don’t Forget Taxes and Insurance
Not all monthly mortgage payment calculators include property taxes and PMI.
Your lender may require that property taxes are included in your payment, making it an essential part of the calculation. If you live in an area with high property taxes, this can significantly add to your payment. Similarly, PMI is typically required when you put down less than 20% and should be included in your calculations.
#7. Weigh the Additional Costs
A mortgage calculator does not include all of the costs associated with buying a home. The new homeowners responsibilities paired with the transaction’s costs should be factored in, too. Closing costs are typically not included by a mortgage calculator and account for administrative items, including the cost of an inspection, appraisal fees, document fees, title, and recording fees.
You should also account for additional expenses, such as homeowner’s insurance, repair or maintenance costs, HOA fees, and utilities, to gauge your potential monthly expenses.
#8. Speak to a Lender
Once you have gained a better sense of your monthly payment and what you think you can afford, start speaking with various lenders to shop rates and terms. A top real estate agent in your area can refer you to a lender and help you start your home search.
For more home buying tips or real estate advice, be sure to explore our blog.