# How to Use a Mortgage Calculator

January 28, 2021

When you are looking to buy or refinance a home, a mortgage calculator can help take into account factors that you may not think of yourself when establishing your mortgage.

A mortgage loan calculator is a resource that estimates your monthly payment and the term of your mortgage. Generally, these tools offer loan recommendations including:

• Breakdown of principal and interest, property tax, homeowner’s insurance, homeowners association (HOA) fees
• Length of mortgage
• Interest rate
• Closing cost

Based on the information you insert into the mortgage calculator, you can see an estimate of your payments. Mortgage calculators are most helpful when you are deciding between which type of loan you qualify for and how each loan will affect your payments.

It’s crucial to understand how different factors, such as the interest rate, down payment, and term of your loan, can affect your mortgage payment. Continue reading to learn how to use a home loan calculator and realize how this tool can make calculating your estimated mortgage payment easier.

## Home Price

The home price, this is the most obvious factor when using a mortgage calculator. Your home price is the total amount that you agree to pay for your home. This is generally the final price that you agree upon after negotiations with a home seller. This variable is the most flexible because you can always choose to buy a more expensive or lower price home. You can use a home value estimator if you want to calculate the value of the home you are interested in purchasing.

## Down Payment

Your down payment is the percentage of the total amount you’re borrowing before you close on your loan. In a loan calculator, you have the option to enter in the dollar amount or the percentage. As you consider your down payment, consider how this initial cost will impact your mortgage in the long run. A higher down payment may qualify you for a lower interest rate. On the other hand, if your down payment equals less than 20% of the home price, you may have to pay private mortgage insurance (PMI). As a rule of thumb for every \$10,000 you fiance is about \$50/month.

## Loan Term

The loan term is the length of your mortgage loan. There are a variety of options for loan terms, the most common being 15-year mortgages and 30-year mortgages. The length of your lean will adjust the amount you are paying each month. To learn more about 15-year mortgage vs 30-year mortgage click here

## Interest Rate

When you receive your loan, your lender will charge you a certain percentage of interest on the amount you borrowed. When you are calculating a monthly payment, your interest is divided into two parts: interest and principal.

The principal of your loan refers to the actual amount you agree to borrow, while interest is the cost of borrowing those funds. In the beginning, most of your monthly payment will go towards paying the interest. Over time, more and more of your money will go towards paying off your principal.

## ZIP Code

The ZIP Code of the property can help determine the correct property tax and homeowner’s insurance. Homeowner’s insurance rates can vary significantly based on where you live.

## Property Taxes

Your property tax is the local taxes that you pay towards local schools, libraries, and public services. Annual property taxes do not impact how much you borrow specifically, but it does impact your monthly mortgage payment.

## Homeowners Insurance

Your homeowners’ insurance is a protection plan that safeguards your home in the event of a crime or natural disaster. Homeowner insurance is not always legally required to buy a home; however, it is a wonderful safety net to have as a fall back in an unfortunate situation. Annual homeowner’s insurance premiums vary by state. Some other factors that influence how much you’ll pay including: