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How to Understand Your Mortgage Calculator

Many different variables go into determining your monthly mortgage payments and the total interest charged over the life of your home loan. Here’s a short guide to understanding your mortgage calculator estimated results and your quotes from lenders. 

Know Where Your Money is Going 

Mortgage payments and fees are more complex than meets the eye, so it helps to break them down into their individual parts using a mortgage calculator, so you can estimate what you expect to pay. 

1. Upfront Payments

First, there’s the amount you pay upfront, comprising down payment and closing costs. Minimum down payment is often 20% or more of the loan amount, unless you’re taking out a government-backed loan with down payment of 0-10%. Closing costs typically reach 2-5% of the loan amount and comprise things like origination fees, appraisal, title fees, and attorney fees.

2. Monthly Payments

The second part is your monthly payments. You make monthly payments until you pay off all your principal. Depending on your loan term, you might make monthly payments for 10 years, 15 years, or even 30 years. Monthly payments are composed of principal, interest (also expressed as APR—rate, plus certain other fees and charges, minus discounts for upfront payments), plus third-party charges required by the lender.

Working out how much you’ll pay each month is tricky. This mortgage loan calculator helps you determine your monthly payments with just a few clicks. Here's a list of the various components of your total monthly payments:

Principal

Principal is the amount owed on the loan. After each monthly payment, your principal decreases, until it eventually reaches zero and you have paid off the loan.

Range: depends on house price

Interest

Interest rate is the cost of borrowing the principal loan amount, expressed as an annual percentage. When other monthly fees are added to the interest rate, this is expressed as APR, or annual percentage rate.

Range: average mortgage rates in 2019 are around 3.5%-4.0%, but rates can be lower or higher depending on the lender, loan amount, and your credit score.

Property Tax

All homeowners must pay local property tax. Lenders usually collect property tax alongside mortgage payments.

Range: from 0-4% of the home value annually, depending on local government rules.

Private Mortgage Insurance (PMI)

If you make a down payment of less than 20%, your lender will probably require you to pay PMI. You may be able to request a stop to PMI once you reach 20% equity.

Range: from 0.5-1.0% of the home value annually.

Homeowners Insurance

Most lenders require homeowners to purchase enough insurance to cover the cost of their mortgage.

Range: average monthly premiums range from $50 to $350, depending on the state.

Homeowners Association Fee

Fee paid by owners of certain types of residential properties, such as condos or single-family homes in a gated complex.

Range: typically ranges from $100 to $300 per month.

Calculate Your Mortgage Options

Your monthly payments are determined by 3 components in this mortgage calculator: 

  1. The loan amount (principal)

  2. Interest rate and fees

  3. Loan term

This calculator shows you how each change affects your monthly payments. 

The effect of loan amount and interest rate on monthly payments is straightforward. The higher your loan amount, the higher your monthly payments and the higher the cost of your mortgage. Likewise, the higher your interest rate, the higher your monthly payments and cost of your mortgage. 

As for loan term, this is trickier: the longer the loan, the higher the total interest paid, but the lower the monthly payments; the shorter the loan, the lower the total interest paid but the higher the monthly payments. 

For example, let’s say you purchase a home for $300,000, pay down 20%, and owe the lender $240,000 at a fixed 4.2% interest rate. 

  1. With a 30-year term, you would pay $1,174 each month and $182,510 in total interest payments over the life of the loan.

  2. With a 15-year term, you would make a higher monthly payment of $1,799 but you would pay only $83,892 in interest—a significant saving in the scheme of things.

Find the Break-Even Point

Refinancing your mortgage is a different calculatio