Purchasing a home is an enormous financial commitment, usually the largest made in a person's lifetime. As such, it is best entered only when fully informed of all options available. One tool that can be indispensable during this process is a mortgage calculator to help estimate monthly costs.
A home loan can be quite complicated, especially for first-time buyers who have never done it before. It's important to understand the different factors that combine to determine what the future home owners' monthly payment will be. A loan calculator can take all these things into consideration with very little effort from either buyer or lender.
There are many free online calculators to be used for this very purpose, although they do vary slightly from each other. Some things are the same in all cases: simply enter in the information required in the fields provided and then estimated monthly payments will be listed.
Information needed to fill in the calculator is very basic. The purchase price of the home will be entered, or the loan amount, if different. The current interest rate will also be needed. The loan term, or length, will also need to be entered.
The loan amount would be the purchase price of the home in most cases, minus the amount put in for a down payment. The term length or loan length is the amount of time until the loan needs to be repaid in full, usually many years in the future.
Some sites also offer input for fields regarding down payment, credit rating, home insurance cost, annual taxes, or other variables. The type of loan needed may be asked for as well; a refinancing may have different terms than a first-time purchase.
All numbers will shift depending on what other variables are included. A large down payment will reduce the total loan amount, and thus reduce the monthly payments as well. Sometimes there may be an option to reduce the interest rate by paying fees, or points, up front; a lower interest rate will also reduce monthly payments.
All these things will be taken into consideration and give an overview of what to expect financially. Besides the monthly payment, other information may asked for as well. This can include what percentage is applied to the interest versus the principal, or the benefits of making extra payments toward the principal, or the length of time until the loan is repaid. It's better to see these things up front instead of a first-time purchaser trying to figure out ever-changing interest rates on their own.
If trying to choose between lenders offering different terms, this tool can provide a quick mortgage comparison. Similarly, if debating the benefits of an adjustable-rate mortgage instead of a fixed-rate, a loan comparison can be determined very quickly.
The bottom line for most homeowners is the amount they will be obligated to pay every month. A mortgage calculator is the quickest shortcut to determining this, and brings a new home that much closer to its potential buyers.
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