Why Use a Mortgage Calculator?

Read Time: 6 Minutes

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July 19, 2022

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Like pulling out your cellphone to run quick numbers correctly, a mortgage calculator, like the one on newrez.com, does the same thing – it takes out the element of accidental goofs when running the numbers or understanding the complicated formulas involved.

Mom with child using calculator and holding receipts

What information do I need to use a mortgage calculator?

Using a mortgage calculator isn’t all that complicated or info-heavy, you’ll just need a few pieces of basic info to get the pieces you’re looking for!

You’ll need:

  • The home’s price
  • Down payment amount on hand
  • Loan amount needed
  • Desired loan term
  • Interest rate

The best news is that you can estimate the amounts; you don’t necessarily need set-in-stone budgets, payment amounts, loan terms, or interest rates to run the numbers! The purpose of a calculator is to help you be a better-prepared and more-informed customer, and that means being able to run different scenarios.

Why do I need these pieces?

Depending on your financing journey you’ll likely have heard these terms a few times – even if you have, it’s never a bad idea to recap.

Home Price

This one is easy! What’s the price of the home or property you’re looking at? You can easily find this information on the property’s listing. Sometimes it is a good idea to also estimate the price at $10k-$20k higher in case the price goes up so that you aren’t blindsided if it does.

Down Payment Amount

This is the amount of money you have in reserve to pay upfront in order to reduce the amount of mortgage you’ll need to take out in total – it’s always better to put down a healthy amount, as most programs require 3%, 5%, 10%, or 20% down.

Loan Amount

This is the amount you’ll need to borrow from your lender to close the gap between your down payment amount and the home or property’s price. As you speak with lenders, this is the amount they’ll be considering.

Home Price – Down Payment Amount = Loan Amount

Desired Loan Term

Loan terms will vary by each customer’s situation, but generally, you can expect a few different loan amounts.

The most common are:
  • 15-Year
  • 30-Year
  • 20-Year

30-Year mortgage terms are the most common, however, there are specific advantages between each option.

The standard elements in your loan’s terms include:

Repayment Period

Your payments will be broken up into monthly installments across the number of years in your term be it 15, 20, or 30 years. This is what you’ll know as your monthly payments.

Interest Rate

Your interest rate is determined according to multiple factors – the current market rate, size of the loan, value of the property to be purchased, your credit score, and style of occupation at the property.

Annual Percentage Rate (APR)

Your annual percentage rate (APR) is exactly what it sounds like – it is your mortgage interest rate calculated as the annual amount. This is the entire percentage of interest on your loan you’ll pay for the year.

Origination Fees

Think of origination fees as the fee applied to run your mortgage application through the lender’s system, separate from an application fee – this fee isn’t a flat rate, but instead (typically) a 0.5% to 1% scalable fee that correlates to your loan amount.

Closing Costs

Closing costs aren’t included in the purchase price you see while looking at properties – they are the costs including a few items we’ve already mentioned like origination fees but also other parts like appraisal fees, title searches and insurance, deed recording fees, and others. Your lender will let you know what these costs will look like within three days of processing your loan as they are legally obligated to.

Prepayment Penalties

Yes, sometimes your lender will levy fees for paying off your loan too early. It is important to double-check the fine print of your loan documents to verify if a prepayment penalty clause is in place or not.

Late Payment Penalties

Much like many other monthly obligations you have in place like your car payment, rent, student loans, or credit cards, you will be charged a late fee for submitting your payment after the assigned payment due date. Be sure to know when your due dates are and stick to them to the best of your ability!

Application Fees

Not exactly the same as an origination fee, application fees are much like when you pay an upfront fee for moving into a new apartment – it is a flat amount to compensate the originator’s time.

Annual Fees

These fees can be a flat dollar amount or a percentage of the loan amount – no matter what the combination may be, these are applied either each year on a specific date or as an amount broken up across the twelve months of the year.

Flexible Payment Terms

You can pay off the loan faster by adding to your monthly payment amount or making extra payments each month, but you can always fall back on the original payment as needed – this way you are never punished for working to pay the loan off faster or following the schedule set when you signed for the loan.

Plus, there are reasons why you should put deep thought into your loan terms:

Predictability

With most mortgage programs that aren’t an adjustable rate program you won’t have to worry about market changes – your rate is locked in and won’t change no matter the market conditions of the day.

Opportunity to Pursue more Expensive Properties

Longer payment terms mean that each monthly payment will be lower as you’re spacing out the payments over a greater length of time.

Bigger Tax Deductions

Your mortgage has the potential of getting you a deduction on your yearly taxes. You are eligible to deduct the interest on your loan from your overall tax bill for the year – this is great, especially in the first few years when you spend most of your time paying on the interest in place of the loan amount itself. You could possibly get a few years’ worth of deductions!

It’s Easier to Qualify for Smaller Payments

This one speaks for itself! With lower payments each month you’re free to pay other bills, build your savings, or save up for some new furniture or a renovation.

Interest Rate

Your interest rate varies by your own unique credit score, the federal interest rate, inflation, location, and other factors like the general mortgage market. There are a few other factors to consider as well, and you’re in luck because these are factors that are within your control! These elements include your Debt-to-Income Ratio (DTI), Loan-to-Value (LTV) Ratio, price of the property, and loan term. By knowing these parts of the equation, you can better position yourself to get the best interest rate you can.

Can I trust a mortgage calculator?

That’s a great question and one you shouldn’t lose sleep over. Calculators are generally trustworthy as long as you verify their source. Are you using a calculator like the one available on newrez.com? By that, we mean that the calculator is operated and maintained by a trustworthy organization that is an expert in their lending niche, like the ones you can find on www.newrez.com.

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