Knowing how a mortgage calculator works is crucial before starting payments on your house. As simple as it sounds, using it is the fastest way to see if you can afford to pay for that home. Moreover, you do not need to be a professor of mathematics to understand how it works.
The mortgage calculator helps you focus on the regular or monthly repayment, including taxes, rates, and homebuyer’s insurance. With it, you can assess your financial capacity to deduct the amount from your monthly paycheck while remaining afloat until completion. Fortunately, using it is as simple as punching a few values into your regular, everyday analog or smartphone calculator.
This article will walk you through everything you need to know about this home loan calculator. You will also learn why getting approval for a mortgage is crucial, amongst other tips. So, let’s get down to it and show you how it works.
What is a Mortgage Calculator?
Having read the brief introduction, you should have a fair knowledge of where we are headed. There is no need to fret because you don’t have to order or receive any physical device. You can handle all the calculations with your mobile phone or PC because it is that simple.
In the simplest terms, the mortgage payment calculator shows you how much you’ll need to pay each month. That sounds easy until you realize it has many functionalities and can make several adjustments. You can set the down payment, pick an interest rate, and even adjust the length of your mortgage.
The most significant parameters you need when buying a home include the following:
- The property price.
- The down payment you are willing to make.
- The length of your mortgage or what is called the amortization period.
- The interest rates for the mortgage.
Once you settle on these parameters, you can use the mortgage calculator to determine your monthly repayment. Some advanced ones might even calculate how much you need for the closing and the transfer tax. Nevertheless, it would be best if you had a professional mortgage brokerage like Spring Mortgage for the best advice.
It is not enough to use the mortgage calculator unless you are a pretty experienced home buyer. The best course of action is to work with a professional broker.
Why You Need a Home Loan Calculator
You might look at the monthly repayment and think it is all for mortgage payments. Of course, the calculator will help you get that figure, but you will miss out on other crucial aspects. However, with outstanding debt hitting 1.55 trillion in Q3 of 2021, paying attention to all the information the calculator offers is prudent.
You don’t want to get overwhelmed by the financial commitments needed to get a house. The mortgage calculator provides information on CHMC insurance, land transfer tax for first-time buyers, and the closing price. So, while considering the monthly or regular repayment, consider these parameters.
Once you find a suitable home, the next step will be to turn on your calculator. Clearly, you should do it with a broker to gain more insights and in-depth information. Most of the information will not make sense to you, especially if you are a first-time home buyer.
Before we learn how to use the mortgage calculator, we should understand some terms. So, let us get the basics out of the way while we prepare to punch in some values.
Mortgage Repayment and What it Means for You
The amount you pay each month to pay off your mortgage is the repayment, and the mortgage calculator will tell you immediately. Don’t forget that the total amount of your mortgage includes both the principal and the interest, which varies based on the interest rate. Sometimes, it may consist of the CMHC, mortgage default insurance, land transfer taxes, etc.
You will need CMHC insurance if you make a down payment of less than 20% of the property cost. While your initial payments will go towards clearing the interest, you will start chipping away at your mortgage balance soon enough.
To give you better clarity and understanding, let us look at the fees involved in mortgage payments.
Mortgage Fees
The following are the fees you must pay attention to when calculating your mortgage:
- Principal: The principal is the original amount you took out through the loan. With the mortgage calculator, you can tell how much of the monthly repayment will go into clearing this debt.
- Interest: This amount depends on the interest, which goes back to the lender. The rate could be fixed or variable, which is what the lender charges for lending you money.
- Land Taxes: The amount you pay as property taxes depends on the local tax authority. You can always look up the local property tax from the official websites of your authorities. Also, you must pay attention to this charge, as you might get a lesser amount as a first-time home buyer.
- Insurance: The insurance protects you and the lender if the home gets damaged during repayment. You can contact the local insurance agent or get it from the real estate broker.
- Mortgage Insurance: Lenders may require a specific percentage to protect themselves in the event of a default. Of course, it is essential as not all buyers follow through with the purchase. Getting a home is something you should do with care.
Depending on the community in which the property resides, there may be other fees. You could pay extras like home insurance fees. Always ask your real estate broker for this information.
Using the Mortgage Payment Calculator
We strongly advise you to converse with a brokerage for expert insights. Most of the information on the mortgage calculator might not make sense to you.
Before we head into the calculations, here is the information typically provided by the calculator:
- Price of the home
- Down payment
- The amortization period and the term
- Annual percentage rate
- Property taxes
- Insurance
With that in mind, follow the steps below to use the mortgage calculator:
- Input the home price, which is the total purchase price for the house. This simple step can also show you how much you can afford to pay.
- Enter the amount you are willing to deposit as a down payment. You can opt for a specific percentage of the home price or enter an amount.
- Choose your interest rate. To keep things realistic, you cannot enter a random value, only the offers you have received. However, you can use the current mortgage rate as a start.
- Choose the amortization period or the loan term. It could go as high as 30 years, depending on your province.
- The remaining information you need includes the taxes and the insurance. You might also need the homeowners association (HOA) fees if you go into a community. It is not always present.
- Your real estate agent will often give you information on taxes and insurance fees. You can check for them on your local property assessor’s site if that is not the case.
- Once you fill in those details, the home loan calculator will bring up details on your monthly payment. You can play with it a little to determine how much goes into the principal and interest. It will also allow you to see the annual and closing payments.
How the Mortgage Calculator Helps You Get Approved
With a trusted brokerage like Spring Mortgage, using the calculator and getting approvals becomes easy. Nevertheless, you must be aware of certain things before you apply. These things ultimately determine whether you get approved or not.
The following is what you need for quick approval:
- A Good Credit Rating: You must evaluate your credit score before applying. Optimally, you should have at least 680 or higher to have a good standing. Remember that a good score will also give you better rates, reducing your monthly payments. Credit scores of 600 and above are good, but you can apply even with a score of 560. However, you will not get the best mortgage rates at that figure.
- Proof of Income: This requirement is fundamental as it proves you can repay the mortgage. You might need to provide tax documents as proof of income.
- The Mortgage Stress Test: This point is where the mortgage calculator comes into play. Before the test, you can assess your capability and, with the advice of a brokerage, know your standing.
- Down payment: Again, the mortgage calculator can help you pick the down payment you are comfortable with. Then, you can calculate the home price you can afford without hassles. Doing this puts you at an advantage in getting your application approved.
Tips to Get the Best Mortgage
A mortgage is undoubtedly a long-term debt and one that must be carefully planned. For that, you should do everything legally possible to get the best rate and ease your financial burden.
With that in mind, here is how you can use the mortgage calculator to get the best rates:
- Affordability: Use the calculator to determine how much you can afford. It is crucial to be realistic when doing this to avoid getting overwhelmed during repayment. Hence, try the calculator with as many figures as possible until you get something comfortable. Remember that you don’t have to borrow the entire amount for the home.
- Amortization periods or terms: Loan terms range from one year to thirty years, but that should not be your concern. Instead, use the calculator to determine which term gives you the best monthly payment. While at that, be aware that more extended periods offer lower monthly rates.
- Pick a mortgage type: At this point, you need the services of a brokerage like Spring Mortgage. With us, you will get better insights into the loan types and which works best for you. In addition, you will learn which types fit your credit score and how location can also be an influencing factor.
- Experiment with the calculator: The calculator is yours to command. Input as many values as possible and try different scenarios. Doing so will give you a good overview of what you need. You will never know how small down payments or loan term changes will affect your monthly payments. That is, until you make them on the calculator and see the results.
Mortgage Calculator Conclusion
The simplicity of a mortgage calculator allows you to use it without a steep learning curve. You put in the property’s price, down payment, and other details like rates and terms. Then, the calculator’s output will show you the monthly repayment.
You should contact a brokerage when using the calculator. Also, while using it, focus on the monthly repayment and note other fees like taxes and insurance. Doing that will help you get a comfortable rate to avoid missing payments.
