Before taking the leap and purchasing a home, using a mortgage calculator can help you better understand your financial situation. A mortgage calculator will help you determine how various factors such as interest rates, debts, and repayment terms will affect your monthly payment amount.
You must know what your financial standing is before applying for any home loan since it can arguably be one of the most significant economic decisions you make in your life.
What Will a Mortgage Calculator Show You?
A mortgage calculator will give you a clearer sense of the monthly payments you can afford without putting too much strain on your finances.
While you almost certainly have a price range in mind before you start canvassing homes within your budget, using a mortgage calculator will help you narrow down your choices. There can be a significant difference between homes you can afford and homes you can qualify for, and a mortgage calculator can determine the best option for your circumstances.
What Factors Affect the Accuracy of a Mortgage Calculator?
The accuracy of any mortgage calculator will depend on the accuracy of your inputs. The more accurate your input, the better the payment amount you will incur for your mortgage.
Here are the inputs that you need to keep in mind:
● Down payment
The amount of down payment you can afford to shell out will affect both your mortgage and interest rates. Generally, bigger down payments result in lower interest and mortgage rates. Not only does the lender face lower risks of getting their money back, but you also have a smaller amount to pay off.
If you can only afford less than 20% of the down payment upfront, you may need to apply for private mortgage insurance (PMI).
● Gross annual income
A higher gross annual income will put you in a better position to negotiate. You can opt for a shorter repayment period and get lower interest rates. The shorter the life of the loan you afford, the better your chances of getting the best deal in your mortgage agreement.
● Debts
Any liabilities you have should also be calculated when you use a mortgage calculator. You’re aiming for a good debt-to-income ratio. Keep the 36% rule in mind: you should not exceed more than 36% of your income when paying your bills. This includes utilities and other loans, not just your mortgage.
● Location
Finally, the location of your desired property can also be a factor to consider. The location will determine the amount you will pay in insurance costs and taxes.
Is a Mortgage Calculator Enough?
While mortgage calculators are great tools to give you a feel for your readiness to purchase a home, it is best to speak with a qualified mortgage broker. A trained mortgage broker will help guide you through your options and answer any questions you may have, especially if you are applying through a special circumstance such as VA loans.
