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How Does A Mortgage Calculator Work

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By : Hubert Miles    99 or more times read
Mortgage calculators are very popular among people who are looking to refinance or buy a new home. Part of what makes them so popular is that they make it so easy to plan a payment within the persons individual or family budget. Here is how it works.

Mortgage Balance

when you start using a mortgage calculator, you'll need to know the amount of money you are financing. If you have a mortgage currently, this is likely the amount you owe on your home. If you are purchasing a new home this will be the purchase price plus closing costs minus your down payment. Closing costs include the cost of the attorney, loan origination fees, and any additional fees like appraisals, surveys, home inspections, etc. Unsure about these items, add 5% to the amount financed as an estimation.

Mortgage Interest Rate

The interest rate is an important factor that will determine the amount of the monthly payment. Some lenders allow you to purchase points, also referred to as an origination fee, that will lower your interest rate. In general this is not a good idea in that this money is just interest that is paid upfront and it eats into the homes equity.

Mortgage Term

The amount of time you have the loan financed for is the mortgage term. This can vary based on your needs. The shorter the time period the less you will pay in interest. A 15 year note is equal to 180 months.

Taxes, Insurance and PMI

Mortgage calculators can calculate what escrow payments will be based on real estate taxes, home insurance, and private mortgage insurance (PMI). PMI is required on a home loan where there is less than 20% equity in the home. Payments can be calculated with or without this info.

Calculating Payments

This information will calculate the amount of your monthly payment and total amount of interest you will pay over the term of the loan. The output is also displayed in a printable amortization table outlining the breakdown of the principal and interest charged on each payment and the amount owed after each payment has been made.

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