A mortgage calculator helps many borrowers to better understand their financial position. It enables them to explore different scenarios – such as a new interest rate or loan term – and see the impact of any changes on their finances.
It’s a simple and easy to use tool that helps individuals understand what they can afford so they can quickly understand their options, and can take control of their finances.
Here are five ways a mortgage calculator can help you:
- Calculate your monthly mortgage repayments
The cost of a mortgage in terms of monthly repayments is not always obvious when you apply for it. A mortgage calculator provides a quick and easy way to check the numbers.
For example, you may want to know what your monthly repayments would be on a $300,000 home loan. Simply enter this amount, add in a realistic interest rate and the proposed duration of the mortgage – and then click on the calculate button.
This will tell you what your repayments would be for that that interest rate and loan term. You can then take a step back and determine whether or not you can afford this amount in the context of all your other monthly outgoings.
If this figure is too high for you, then you can then change your specifications – such as by borrowing less or increasing the length of your loan term – to find what works for your personal circumstances. You can then look for a home loan provider who offers a product that meets your requirements.
It’s a good idea to use a mortgage calculator before approaching a lender to avoid the possibility of a rejected application, which could harm your credit file.
- Understand the impact of interest rates on your loan
Interest rates can make an enormous difference to your monthly payments, and to the amount that you pay over the course of the loan.
With a calculator, you can see how different interest rates impact your repayments. This is useful knowledge to have before you approach a home loan provider.
If the house you want to buy costs $750,000 and you choose a 25-year mortgage, the interest rate will determine how much you pay. For example, with a 5% interest rate and no ongoing fees, your monthly repayments will amount to $4,384.43. Compare this to a $750,000 loan with a 4.5% interest rate and no ongoing fees, and the monthly repayments would be $4,168.74.
Over the course of your loan, this would amount to a cumulative interest differential of $63,117.13. As you can see, even a small interest rate change can bring considerable savings!
Competitive interest rates on your mortgage will make a big difference to your overall financial position. A mortgage calculator will clearly show you how significant that difference is.
- Choose the right loan term for your mortgage
Your monthly repayments will come down when you lengthen the term of your loan, such as by changing from a 20 to a 25-year mortgage. However you could potentially pay more in interest over the life of the loan. A mortgage calculator will help you determine the loan period that best suits your short-term and long-term personal objectives.
A calculator will also help you work out the amount you need to pay each month to shorten your loan term. For example, as with the previous example of a $750,000 loan paid over 25 years at 4.5% with no ongoing fees – you would pay $4,168.74 per month. However, by increasing your monthly repayments to $4,744.87, you would shorten your mortgage term by five years to 20 years.
- Find out how much you can borrow
Every home loan provider applies mortgage limits based on your income. This means that the more you earn, the more you can borrow.
Use our How much can I borrow calculator to work out your borrowing power. You will need to enter your combined and total household income, details of any dependents, and your monthly expenses. The calculator will then determine your price range.
- Compare home loans products
Financial institutions offer many types of home loans. With a mortgage calculator, you can find out what type of mortgage offers you the best value.
For example you can compare fixed-rate and variable-rate mortgages to help you decide what is right for you. You can also compare different mortgage products – like equity release and refinance deals.
A mortgage calculator can help you better understand your financial position and the options available to you. It can enable you to run different scenarios to help you make an informed choice on the right mortgage product for your needs.
View uno’s full suite of mortgage calculators.
With Alexi Neocleous
The information in this article is general in nature. Please seek advice from a licensed professional when making financial decisions.