At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
A mortgage calculator is a device that uses a formula to figure out compound interest on money owed, so you can determine exactly what your monthly mortgage payment would be on a given loan. There are many mortgage calculator websites and they typically ask for a few pieces of information. They will want to know the exact amount of the money you plan to borrow, the interest rate at which you borrow it, and the total length of the loan.
Each mortgage calculator can yield slightly different results. Most will tell you what your payment will be, the total amount you will end up owing if you maintain the same loan and the total amount of interest you’ll have to pay. Usually, these calculators don’t figure in other costs like mortgage insurance, so you’ll need to add these costs onto the top of whatever payment amount the mortgage calculator shows.
Many of these mortgage calculator sites lead directly to sites about real estate, banking or credit reports. You don’t necessarily have to give out any personal information if you want to use a mortgage calculator. Moreover, if you’re in anyway suspicious of the results you can check the loan on several calculators to make sure that payment amount is accurate. If you do plan to obtain a loan in the near future, you can also ask the bank to calculate the amount of monthly payments. Be certain that these payments will remain the same and aren’t interest only payments that later are subject to increasing.
Even if you’re not looking at buying a house today, you can figure out what you’d need to make in order to purchase a house in the future. Many economists say that you should spend no more than 30% of your salary on housing payments, though its certainly true that there are a number of people who spend a higher percentage. If you make $4500 US Dollars (USD) per month, this would technically mean you could spend about $1500 USD per month on payments, approximately a $200,000 USD 20-year loan at 7% interest.
Of course you will to need to adjust this when you consider your other expenses and remember that there are costs associated with owning a house. If you own your own home, you’ll need to spend money to address any repairs, as there is no landlord to fix things. Other costs can include utilities, if you don’t already pay these, taxes, and insurance for your home. While a mortgage calculator is a good place to start in figuring out what kind of loan you can afford, you will need to consider other expenses before you decide how much of a loan is feasible within your income.