Are you considering homeownership for the first time, but aren’t sure what kind of house you can afford? If so, a mortgage calculator is a helpful tool that you can use to determine what your monthly mortgage payments might be.
A mortgage calculator helps you estimate your monthly payments. When you use the Rocket Mortgage ® calculator, it’ll factor in frequently overlooked costs like property taxes and homeowners insurance.
Let’s learn more about how a mortgage calculator works, and the different factors it uses to determine your monthly mortgage payments.
If you’re new to homeownership, you may not realize that the loan amount isn’t the only factor to consider when determining how to calculate a mortgage payment. Let’s look at how mortgage payment calculators break down your monthly mortgage expenses.
Your home price isn’t the listing price you first saw on a real estate website, though it may end up being the same thing – in all likelihood, your home price will be either higher or lower than that number. It’s the final price you negotiate with the seller, and it’s the total amount you’ve agreed to pay for your home.
And when you’re searching for a mortgage, the home price is the most easily adjustable factor. For example, you can’t negotiate on the property taxes in your state, but you can always try to negotiate a lower price on your home.
Depending on how much you change the home price in the mortgage calculator, it could drastically change your estimated monthly mortgage payments. You can play around with those numbers a little to figure out what kind of monthly payment you can afford.
When you take out a conventional mortgage, most lenders will expect some kind of down payment. A down payment is a percentage of the entire loan amount you pay upfront before closing on the mortgage. To avoid paying private mortgage insurance (PMI) on a conventional loan, lenders expect a down payment of at least 20%. If you pay less than 20%, lenders will expect you to pay PMI as part of your mortgage payment each month.
So, if you’re purchasing a $300,000 home, that means you’ll want to make a down payment of $60,000 before closing on the loan. Your down payment is subtracted from the total amount you borrow.
Of course, a 20% down payment is financially out of reach for many people. Fortunately, you can still get a conventional loan with a down payment as low as 3%.
That means using the above example, instead of making a $60,000 down payment, you’ll owe a $9,000 down payment. You can even get a mortgage with no down payment requirements when you qualify for a USDA or a VA loan. Rocket Mortgage does not offer USDA loans.
However, there are advantages to making a larger down payment. Your mortgage lender may offer you a lower interest rate if you make a larger down payment. This is because a larger down payment means you’re less likely to default on your loan.
You can calculate your down payment as either a percentage or a flat dollar amount using the Rocket Mortgage calculator. Test out both options to get a better idea of how it will affect your home costs in the long term and the type of down payment you’ll need to bring to closing.
The loan term is the length of your mortgage. For instance, if you take out a 30-year mortgage, that means you’ll make a monthly payment for 30 years. Once the loan term is up, your mortgage should be paid off.
Mortgage loan terms can vary, but most borrowers choose either a fixed-rate 15-year or 30-year mortgage. You can adjust your monthly mortgage payment by changing the loan terms.
For instance, if you want a lower monthly payment then you’ll want to choose a 30-year loan term. If you’re looking to pay less money in interest overall and can manage a higher monthly payment, you’ll want to choose a shorter loan term.
Spend some time thinking about how much money you can afford to spend on your monthly mortgage payments. From there, you can test out different loan terms to see which one is the most manageable for your current income.
Use the mortgage calculator to see what your payments will be like with both options. Then, consider how much you’ll pay in interest over the life of the loan.
In exchange for giving you a loan, your lender will charge you interest on the total amount you borrow. Lenders calculate this interest as a percentage. For instance, a 4% interest rate means you’ll pay 4% on the total loan balance until the mortgage is paid off.
When you make your monthly mortgage payment, part of your payment will go toward interest and the rest will be applied to the principal. In the beginning, most of your monthly payments will go toward interest. But over time, more and more of your money will go toward principal.
The process of spreading your interest and principal payments over time is called amortization. When your loan is fully amortized, your loan balance reaches $0. This typically happens at the end of your term unless you make extra payments.