How to Effectively Utilize a Mortgage Loan Calculator

While mortgage loan calculators are used to calculate the essentials of your mortgage loan, they do not take into account latest changes in banking or federal government legislation governing residential mortgages.

However, mortgage loan calculators are still valuable tools to have because they facilitate the decision-making process. They provide future homeowners with a good idea of what their finances might look like once the house is purchased.
You can effectively utilize a mortgage loan calculator by following a few simple steps. A mortgage loan calculator will save you the time of going back and forth to your banker or mortgage company with “what if” questions. You can actually change the amounts and rates yourself.

Effectively Utilizing a Mortgage Loan Calculator: Steps

First, find the home of your dreams. Your dream home must take into account location, neighborhood schools, recreational facilities and proximity to health care centers. Of course your dream home must also have the amenities that you desire such as number of bedrooms, environmental-friendly features and comfort. Find out how much this dream home would cost you. If it’s $ 450,000.00, then this is the amount that you input into the calculator where it says “price of house.”

Second, review your cash assets and determine how much you can afford for a downpayment. Check with state regulations or your banking institution if there is a minimum downpayment required. In some locations, all you need is a 5% downpayment; in other locations, the minimum may be higher. Ask yourself, “how much cash can I put down as downpayment and still have money left for emergencies?” Five percent of $ 450,000.00 is $ 22,500.00. If you have this amount, enter it on the mortgage loan calculator. If you have no downpayment, enter zero (0).

Third, think how long it will take to pay for your house in full. This is what bankers call “amortization” – the price of the house divided by the number of years you are willing to make payments. Common terms are 20, 25 and 30. The longer the term, the lower your monthly payment. For those who want to pay off their mortgage within the shortest possible time – say 15 years – the monthly payments will be higher. Enter the number of years where it says “select term.”

Fourth, find out what the interest rate would be. Different banks offer different rates depending on the following factors:

* whether your mortgage is calculated on a variable or fixed rate
* whether you have security to back up your loan
* whether you take out mortgage insurance
* whether your financial situation is deemed “healthy” by your banker
This is one of the best advantages of a mortgage loan calculator. You can play with various interest rates and the calculator automatically calculates your monthly payments. If you want to go with the variable rate, take the rates of the last 12 months and come up with an average. So if the average comes to say 6.5%, you enter this rate. For fixed interest rates, if your banker says you can expect 7%, you enter 7%.

Fifth, now that you have entered the required data, the last step is to click on “calculate.” The calculator spews out an amount that will help you decide if you can afford that dream home.

Things to Remember When Using Mortgage Loan Calculators Effectively

Banks have their own ways of weighting certain criteria. While they have a set of criteria that applies to all mortgage applicants, they use their discretion in the final approval process. So the first thing to bear in mind when using a mortgage loan calculator is to consider the calculations to be ballpark figures. Do not rely 100% on the calculator. For example, monthly payments could be $ 1,200.00 but if your banker judges you to be a high risk, he may increase monthly payments to $ 1,350.00.

Don’t fix your budget on the basis of what the calculator says. Remember that it does not know, nor does it take into account those expenses relating to closing and miscellaneous expenses, which may include legal, notarial, and renovation charges. Your mortgage loan calculator is a guide, not the definitive answer to all your mortgage loan questions.

If you decide that the monthly payments are still too high even after adjusting the term and interest rate, then you may have to look for a less expensive home. This is where the usefulness of mortgage loan calculators comes in. Before you hear it from your banker, the calculator tells you if you can afford it or not so that you are mentally prepared when you meet with your banker.