Mortgage calculators are automated tools that enable users to determine the
financial implications of changes in one or more variables in a mortgage financing arrangement. Mortgage calculators are used by consumers to determine monthly repayments, and by mortgage providers to determine the financial suitability of a home loan applicant.
The major variables in a mortgage calculation include loan principal, balance, periodic compound interest rate, number of payments per year, total number of payments and the regular payment amount. More complex calculators can take into account other costs associated with a mortgage, such as local and state taxes, and insurance.
Mortgage calculation capabilities can be found on financial handheld calculators such as the HP-12C or Texas Instruments TI BA II Plus. There are also multiple free online free mortgage calculators, and software programs offering financial and mortgage calculations.
When purchasing a new home, most buyers choose to finance a portion of the purchase price via the use of a mortgage. Prior to the wide availability of mortgage calculators, those wishing to understand the financial implications of changes to the five main variables in a mortgage transaction were forced to use compound interest rate tables. These tables generally required a working understanding of compound interest mathematics for proper use. In contrast, mortgage calculators make answers to questions regarding the impact of changes in mortgage variables available to everyone.
Mortgage calculators can be used to answer such questions as:
If one borrows $250,000 at a 7% annual interest rate and pays the loan back over thirty years, with $3,000 annual property tax payment, $1,500 annual property insurance cost and 0.5% annual private mortgage insurance payment, what will the monthly payment be? The answer is $2,142.42.
A potential borrower can use an online mortgage calculator to see how much property he or she can afford. A lender will compare the person's total monthly income and total monthly debt load. A mortgage calculator can help to add up all income sources and compare this to all monthly debt payments. It can also factor in a potential mortgage payment and other associated housing costs (property taxes, homeownership dues, etc.). The typical mortgage calculator does not include costs like maintenance costs, refurbishment, landlord insurance, and other extra costs like service fees, property management costs, etc. One can test different loan sizes and interest rates. Generally speaking, lenders do not like to see all of a borrower's debt payments (including property expenses) exceed around 40% of total monthly pretax income. Some mortgage lenders are known to allow as high as 55%.
As a recent trend since the Financial crisis of 2007–08 that was founded on many individuals' bad mortgage decision in residential borrowing, a new generation of mortgage calculation tools has emerged. They are better equipped to estimate the long-term cost and financial risk of various types of mortgages. Rather than "mortgage calculator", the new tools have become popularly known as "mortgage analyzers". Their main advantage is in the analysis of adjustable rate mortgages where the potential cost and amount owing on the mortgage are estimated under thousands, sometimes millions, of possible future mortgage rate scenarios, and then aggregate figures for average cost and risk based on all scenarios are estimated. Conventional mortgage calculators are capable of handling just a handful of scenarios.
In the United Kingdom, the FCA - Financial Conduct Authority (formerly the FSA - Financial Services Authority) regulates loans secured on residential property. It does not prescribe any specific calculation method, however it does prescribe that for comparative purposes lenders must display an Annual Percentage Rate (as prominently as other rates).
In Spain, the regulatory authority (Banco de España) has issued and enforced some good practices, such as clearly advertising the Annual Percentage Rate and stating how and when payments change in variable rate mortgages.
The major variables in a mortgage calculation include loan principal, balance, periodic compound interest rate, number of payments per year, total number of payments and the regular payment amount. More complex calculators can take into account other costs associated with a mortgage, such as local and state taxes, and insurance.
Mortgage calculation capabilities can be found on financial handheld calculators such as the HP-12C or Texas Instruments TI BA II Plus. There are also multiple free online free mortgage calculators, and software programs offering financial and mortgage calculations.
When purchasing a new home, most buyers choose to finance a portion of the purchase price via the use of a mortgage. Prior to the wide availability of mortgage calculators, those wishing to understand the financial implications of changes to the five main variables in a mortgage transaction were forced to use compound interest rate tables. These tables generally required a working understanding of compound interest mathematics for proper use. In contrast, mortgage calculators make answers to questions regarding the impact of changes in mortgage variables available to everyone.
Mortgage calculators can be used to answer such questions as:
If one borrows $250,000 at a 7% annual interest rate and pays the loan back over thirty years, with $3,000 annual property tax payment, $1,500 annual property insurance cost and 0.5% annual private mortgage insurance payment, what will the monthly payment be? The answer is $2,142.42.
A potential borrower can use an online mortgage calculator to see how much property he or she can afford. A lender will compare the person's total monthly income and total monthly debt load. A mortgage calculator can help to add up all income sources and compare this to all monthly debt payments. It can also factor in a potential mortgage payment and other associated housing costs (property taxes, homeownership dues, etc.). The typical mortgage calculator does not include costs like maintenance costs, refurbishment, landlord insurance, and other extra costs like service fees, property management costs, etc. One can test different loan sizes and interest rates. Generally speaking, lenders do not like to see all of a borrower's debt payments (including property expenses) exceed around 40% of total monthly pretax income. Some mortgage lenders are known to allow as high as 55%.
As a recent trend since the Financial crisis of 2007–08 that was founded on many individuals' bad mortgage decision in residential borrowing, a new generation of mortgage calculation tools has emerged. They are better equipped to estimate the long-term cost and financial risk of various types of mortgages. Rather than "mortgage calculator", the new tools have become popularly known as "mortgage analyzers". Their main advantage is in the analysis of adjustable rate mortgages where the potential cost and amount owing on the mortgage are estimated under thousands, sometimes millions, of possible future mortgage rate scenarios, and then aggregate figures for average cost and risk based on all scenarios are estimated. Conventional mortgage calculators are capable of handling just a handful of scenarios.
In the United Kingdom, the FCA - Financial Conduct Authority (formerly the FSA - Financial Services Authority) regulates loans secured on residential property. It does not prescribe any specific calculation method, however it does prescribe that for comparative purposes lenders must display an Annual Percentage Rate (as prominently as other rates).
In Spain, the regulatory authority (Banco de España) has issued and enforced some good practices, such as clearly advertising the Annual Percentage Rate and stating how and when payments change in variable rate mortgages.
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