Purpose of Using Mortgage Calculator

If you are thinking about buying a new home, paying off your current mortgage early or refinancing a current mortgage, a mortgage calculator is just what you need. Mortgage calculations involve a lot of math which can be really tricky and a mortgage calculator makes it easy to compare your loan options calculating all the relevant cost information so that you can make smart financial decisions.

Therefore, the main purpose of using a mortgage calculator is to find out:

  • How much your monthly payments will be, which can help you decide which home you can afford;
  • How much interest you will have to pay;
  • Is it reasonable to pay for points to reduce your interest rate;
  • Is it a good idea to refinance and for how long you will have to stay in the home to break even on refinancing costs;
  • Whether a conventional mortgage or an ARM makes the most financial sense.


What Should You Pay Attention to on a Mortgage Calculator?

Generally, there are three numbers you need to have in your mortgage calculator.

Monthly Cost

It really does not matter whether it is a good deal or not if you cannot afford the monthly payment. Before you make the final decision, consider if the payments fit your budget. Therefore, this may mean that you will need to rethink if you can afford the house you want or how quickly you can pay it off.

The Total Cost

Loans that have a shorter time duration and a lower interest rate will have lower costs over time. Nevertheless, you may have more up front costs (in case you are buying points to lower your interest rate) or higher monthly payments (in case you have a shorter loan term). Compare this number on different loans to get an idea of the real cost of each loan.

Your Break Even Point

Some mortgage calculators which compare different financial options, include a break even point. This indicates how much time it will take for your savings to equal what you have spent to get the loan. This is very important if you have in mind refinancing or buying points: the up-front cost of doing both of these will take some time to pay off in savings, and it may not be worth doing it if you do not have plans of staying in the house long enough to break even.