Mortgages — the infamous Jenna Marbles’ YouTube page once featured a song called “I Hate Being a Grownup,” in which one of the earlier verses equated knowing how a mortgage worked with being a wizard. Fortunately, Jenna was wrong, and anyone can in fact figure mortgages out with a little bit of work and a simple tool; the mortgage calculator.
Your typical mortgage calculator takes just a few bits of data — the mortgage’s principle (i.e. the amount you owe on the home after your down payment), the amortization period (i.e. the duration of the mortgage; most often 30 years), and the interest rate. The first two are obvious, but the third can get a little tricky.
That’s because when you see an advertisement or call a bank for a quote, you rarely if ever get the actual interest rate that you’ll end up paying. Those rates are average rates, or if the bank is advertising particularly sneakily they’ll actually be the best possible rates for that mortgage — not the ones you’ll end up actually getting if you have anything less than 700 on your credit report.
That’s why every mortgage calculator in the world carries some form of disclaimer, because you’ll never be able to actually calculate your monthly payments until the bank itself tells you what they’re going to be, because up until the bank finishes its credit and background checks, not even they know what your rate will be.
There’s one further complication to keep in mind; your mortgage payments won’t be the only cost of owning your home. Property taxes, homeowners’ association dues (if applicable), water/sewer/garbage, and other expenses will weigh in as well. Be sure to bring all of these into your calculations, or you risk buying too much home for your budget.
Finally, if you decide that you’re going to reduce the overall economic impact of your mortgage by paying it off early (and thus skipping out on some interest payments), there are also mortgage over payment calculators on the Internet that can show you what the exact effects of your overpayment will be. They’re worth checking out — it can be quite motivating to pay an extra $20/month knowing that it’ll save you $7000 in the end!
About the Author:
Richard Simon is a residential mortgage expert and co-founder of Realty AZ Central. Realty AZ Central is a Phoenix Arizona based real estate marketplace offering a host of home buyer and seller resources including home selling tips, mortgage lender referrals, and a local real estate agent network.