September 8, 2016
Why You Should Use Mortgage Calculators
When starting the home-buying process, it’s understandable to want to jump right into house hunting – after all, that’s the fun part. But if you’re going to be smart about buying a home, you need to do some important calculations first. Luckily for you, there are online mortgage calculators that make crunching the numbers a piece of cake.
Online mortgage calculators are automated tools that help you determine the mortgage you may be qualified for, as well as realize the financial implications of mortgage variables such as loan amount, interest rate, payment frequency, and monthly payment amount. Using a mortgage calculator is just as easy as a regular calculator – you fill in the required fields and the calculator generates a result. Which calculator you’ll use, however, depends on the kind of information that you need.
How to Use a Mortgage Affordability Calculator
The most important calculator that you will use is the mortgage affordability calculator. With it, you will be able to determine how much of a mortgage you may qualify for. It takes into account your income, debts, monthly housing costs (including heating), type of home you want to buy, province in which you live, and the type of mortgage you are looking to get, and comes up with an approximation of the amount of money that a lender will loan you for your mortgage, using the federal lending rules that many lenders adhere to.
Keep in mind, however, that just because you qualify for a particular amount doesn’t mean that you can afford it. Before applying for a mortgage, you also need to do the legwork of keeping track of your discretionary income, which isn’t factored into the calculations done by either banks or mortgage calculators.
Crunch Monthly Costs with a Mortgage Payment Calculator
A mortgage payment calculator is used to figure out your monthly payments. Once you know how much of a mortgage you will qualify for, you can use that loan amount, along with the interest rate and the desired amortization period of your mortgage – the amount of time it will take to pay off your loan – and you’ll get a calculation of your monthly mortgage payments. You’ll also be able to see the difference that various payment frequencies make to the amount of money you’ll end up paying in interest.
Different calculators can be used at different parts of the mortgage process. For example, a mortgage affordability calculator can be used before you start looking for houses so you’ll have an idea of what types of homes are available to you in your housing market. Let’s say that a mortgage affordability calculator shows that you’ll be approved for a mortgage of $400,000. If home prices in your target area are upwards of $600,000, however, then you know you’ll need to either adjust the kind of home you’re looking for or wait a while longer to buy a home so that you can save more money. Or maybe after you’ve been pre-approved for a mortgage and have been guaranteed a particular interest rate, you’ll want to use a mortgage payment calculator, so you’ll know how the purchase price of your home will change your monthly payments.
Know Your Buying Power with Mortgage Calculators
Rather than looking for a house first and doing the math later, using mortgage calculators can give you the confidence to know exactly what you’re getting into before you get in too deep – and commit yourself to owing more money than what your income can support. Many people find the house that they love first and then try to get a mortgage, only to find out that they’re not approved for the financing that they need in order to buy it. Other buyers will be approved for a mortgage that may cover the cost of the house itself, but then find themselves unable to make ends meet because they failed to take into account the extra incidentals of home ownership such as property taxes and maintenance along with their day-to-day living expenses, including childcare fees and transportation costs.
You should also keep in mind that the numbers, while accurate in their calculations, might change when you actually apply for a mortgage depending on a number of factors, such as your credit report. Although the calculations done by mortgage calculators aren’t set in stone, they’re a good planning tool so that when you actually meet with your lender or mortgage broker, you’ll be prepared.
Do you find mortgage calculators to be helpful? Tell us in the comments!