How to Use a Mortgage Payment Calculator

A mortgage is a loan from a bank or financial institution that helps you purchase a home. While it’s an attractive way to purchase without needing much cash down, there are certain costs you should be aware of such as property taxes, homeowners insurance and private mortgage insurance (PMI).

A down payment is the amount paid in cash upfront when purchasing a house. It reduces the total loan amount and, thus, saves you money from interest costs. The larger your down payment, the lower your monthly payments will be.

Typically, down payments for home purchases require 20% of the purchase price; however, FHA loans allow borrowers to put down as little as 3%, and VA loans require no down payment at all.

Your debt-to-income ratio is the percentage of your income that goes toward recurring obligations such as auto leases, student loans, credit card payments, installment loans and child support or alimony. It’s essential to understand this number since it will determine how much money you can borrow from a lender.

Before you begin looking at homes, getting preapproved for a mortgage is essential. This will let you determine how much house is within reach based on your income and other factors.

Entering your debt-to-income ratio and mortgage rate into the calculator is an effective way to determine how much you can borrow. You may also adjust these inputs for an accurate estimation of what your monthly mortgage payment will be once you have a loan and are ready to make an offer on a home.

If you want to pay off your mortgage faster, making extra payments or reducing the length of your loan may be successful. This strategy will decrease your loan balance and lead to paying less interest over its life with a quicker payoff.

Another strategy is to rent out a bedroom in your home and use the rental income as partial payment towards mortgage. This solution may be ideal for people living in areas with affordable housing prices.

The mortgage calculator also offers options to factor in recurring expenses that you may need to pay throughout the life of your loan, such as property taxes, home insurance and HOA fees. These costs can add up over time due to inflation increases.

Optionally, you can input annual percentage increases for these common mortgage-related expenses into the calculator. Doing so provides a more precise representation of how your payment would change over time.

You can use this tool to determine when you will reach 20 percent equity in your home, which is the threshold that allows for the waiver of private mortgage insurance (PMI). Lenders charge this fee as protection in case you stop making your payments on time.