Mortgage calculators are used to help a current or potential real estate owner determine how much they can afford to borrow to purchase a piece of real estate. Mortgage calculators can also be used to compare the costs or real interest rates between several different loans, determine the impact on the length of the mortgage loan of making added principal payments or bi-weekly instead of monthly payments. A mortgage calculator is an automated tool that enables the user to quickly determine the financial implications of changes in one or more variables in a mortgage financing arrangement. The major variables include loan principal balance, periodic interest rate compound interest, number of payments per year, total number of payments and the regular payment amount.
Mortgage calculator capability can be found on most financial calculators such as the HP-12C, in most desktop spreadsheet programs such as Microsoft Excel and on the Web.
As a recent trend since 2007, in a wake of a financial crisis that was founded on many individuals' bad mortgage decision in residential borrowing, a new generation of mortgage calculation tools has emerged. They are better equipped to estimate the long term cost and financial risk of various types of mortgages.[citation needed] Rather than mortgage calculator, the new type of tools has become popularly known as "mortgage analyzer". Their main advantage is in the analysis of adjustable rate mortgages where the potential cost and amount owing of the mortgage are estimated under thousands, sometimes millions of possible future mortgage rate scenarios, and then aggregate figures for average cost and risk based on all scenarios is estimated. Conventional mortgage calculators are capable of handling just a handful of scenarios.
When purchasing a new home most buyers choose to finance a portion of the purchase price via the use of mortgage. Prior to the wide availability of mortgage calculators, those wishing to understand the financial implications of changes to the five main variables in a mortgage transaction were forced to use compound interest rate tables. These tables generally required a working understanding of compound interest mathematics for proper use. In contrast, mortgage calculators make answers to questions regarding the impact of changes in mortgage variables available to everyone.
Mortgage calculators can be used to answer such questions as:
If I borrow $250,000 at a 7% annual interest rate and pay the loan back over thirty years, with $3,000 annual property tax payment, $1,500 annual property insurance cost and .5% annual private mortgage insurance payment, what will my monthly payment be? The answer is $2,142.42.
You can use an online mortgage calculator to see how much property you can afford. A lender will compare your total monthly income and your total monthly debt load. A mortgage calculator can help you add up all your income sources and compare this to all your monthly debt payments. It can also factor in a potential mortgage payment and other associated housing costs (property taxes, homeownership dues, etc.). You can test different loan sizes and interest rates. Generally speaking, lenders do not like to see all of your debt payments (including your property expense) exceed around 40% of your total monthly pretax income. Some mortgage lenders are known to allow as high as 55%.
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