Amortization Calculator: How Much Money Will You Pay for Your Home Loan?
To see how much mortgage interest you’ll pay over the life of your loan, enter the requested information. The mortgage amortization calculator requires your monthly payment, loan term, and interest rate to display the total interest you’ll pay.
Optionally, you can enter any principal payments that you plan to make on a regular or one-time basis and discover when the loan could be paid off.
Amortization Calculator Instructions
Loan amortization refers to gradually paying off a debt, such as a mortgage or loan, through a series of fixed, periodic payments. These payments are typically structured to cover the principal amount borrowed and the interest charged.
Initially, a higher proportion of each payment goes toward interest, but over time, more is applied to the principal until the debt is fully paid off.
Step 1: Choose Your Loan Amount
Use the slider to choose your loan amount. Your loan amount is the cost of the home minus your down payment. Several other factors determine your home loan amount, including your gross income, credit score, down payment, current interest rates, and debt-to-income ratio. Lenders evaluate these factors to determine the maximum mortgage amount you qualify for, ensuring that your monthly payments are manageable within your financial capacity.
Step 2: Input Your Interest Rate
When you’re purchasing a home, the interest rate you’ll receive is influenced by various factors such as your credit score, the type of loan you choose, your down payment amount, the loan term, and the prevailing market conditions. Lenders analyze these elements to assess your risk level and determine your interest rate. To secure a favorable rate, maintain a good credit score, and explore different mortgage offers. You can easily get an idea of the current interest rate trends by conducting a quick internet search.
Step 3: Select Your Loan Term
Will you be financing your home for 15 or 30 years? Will you have an adjustable-rate mortgage? Most mortgages are 15 or 30 years old, and there are advantages to both. Your house will be paid off sooner if you choose 15 years, but your payments will be lower if you choose 30 years.
Step 4: Choose Your Loan Start Date
Your starting date will determine how many months you will repay your loan. A 30-year mortgage equals 360 months, while a 15-year mortgage is for 180 months.
Step 5: Enter any Repayments You Will Make
Mortgage prepayments are extra payments made toward your mortgage principal in addition to your regular monthly mortgage payments. They help reduce the loan balance and shorten the loan term, potentially saving you interest costs. Prepayments can be made periodically or as lump-sum payments, accelerating the process of home loan payoff. If you won’t make any prepayments, just put 0.
Step 6: Click Calculate
You’ll be able to see your monthly payment, how much you’ll pay in principal and interest, and when your loan will be paid off.
Compare Savings Account Rates
Shop and compare online and brick-and-mortar savings accounts to find the highest interest rates, lowest fees, and opening balances.
What Does a Mortgage Payment Include?
A mortgage payment typically includes several costs, which can be remembered using the acronym “PITI,” which stands for:
- Principal: This is the portion of your mortgage payment that goes towards repaying the original loan amount.
- Interest: It represents the cost of borrowing money and is paid to the lender as compensation for providing the loan.
- Taxes: Property taxes are typically paid to the local government or taxing authority and are collected by the lender as part of your mortgage payment. The lender then pays your property taxes on your behalf.
- Insurance: This includes two types:
- Homeowners Insurance: This insurance is required to protect your home from damage or loss due to events like fire, theft, or natural disasters.
- Mortgage Insurance: If your down payment is less than 20% of the home’s value, you may be required to pay for private mortgage insurance (PMI) to protect the lender in case of default.
In addition to PITI, some mortgage payments may include Homeowners Association (HOA) fees if you live in a community with an HOA. These fees cover communal maintenance and amenities.
Your total monthly mortgage payment is the sum of these components. It’s important to note that mortgage payments can vary depending on the type of loan, interest rate, and the specific terms of your mortgage agreement.
How to Pay Off Your Mortgage Sooner
Paying off your mortgage sooner can save you money on interest and help you achieve financial freedom. Here are some strategies to consider:
Make Extra Payments
One of the most effective ways to pay off your mortgage faster is to make additional payments towards the principal. This reduces the outstanding balance and the interest you’ll owe over time.
Biweekly Payments
Instead of monthly payments, consider making half your monthly payment every two weeks. This results in 26 half-payments, which is equivalent to 13 full payments in a year.
Round-Up Payments
Round up your monthly payments to the nearest hundred or even the nearest thousand. This extra amount can significantly reduce the principal over time.
Make a Lump Sum Payment
Whenever you have extra funds from bonuses, tax refunds, or other windfalls, consider making a lump-sum payment towards your mortgage.
Refinance to a Shorter Term
Refinancing your mortgage to a shorter-term loan, such as from a 30-year to a 15-year mortgage, can increase your monthly payments but significantly reduce the overall interest you’ll pay and help you pay off your loan sooner.
Apply Windfalls
Use any unexpected financial windfalls, like inheritances or work bonuses, to pay down your mortgage principal.
Increase Monthly Payments
Whenever your financial situation allows, increase your monthly payments. Even a slight increase can make a big difference over time.
Create a Budget
Develop a budget to manage your finances effectively, allowing you to allocate more funds toward your mortgage.
Consider Making an Extra Payment Each Year
Make one extra monthly payment yearly. This effectively adds an additional payment to your principal over time.
Automate Your Payments
Set up automatic payments to ensure you make consistent extra payments without forgetting.
Remember to check your mortgage agreement for prepayment penalties or restrictions and to discuss your plans with your lender to ensure that your additional payments are applied correctly. Paying off your mortgage early requires dedication and discipline, but it can provide financial security and peace of mind.
How to Shop for the Cheapest Mortgage
Shopping for the cheapest mortgage involves a few key steps to secure the best possible interest rate and terms for your home loan:
Check Your Credit
Start by reviewing your credit report and score. A higher credit score can often lead to lower interest rates. If your score needs improvement, work on boosting it before applying for a mortgage.
Compare Lenders
Gather quotes from multiple lenders, including banks, credit unions, online lenders, and mortgage brokers. Remember to consider local and regional lenders as well.
Ask for Loan Estimates
Request loan estimates from the lenders you’re considering. This standardized form provides a breakdown of the loan terms and costs, making it easier to compare offers.
Understand All Costs
Pay attention to all costs associated with the loan, including interest rates, origination fees, discount points, and closing costs. Compare the Annual Percentage Rate (APR) to get a more accurate picture of the total borrowing cost.
Consider Different Loan Types
Explore different mortgage products, such as fixed-rate and adjustable-rate mortgages, to determine which best suits your needs and budget.
Negotiate and Ask Questions
Feel free to negotiate with lenders and ask questions about the terms and fees. Lenders may be willing to offer more favorable terms to win your business.
Review the Good Faith Estimate
Examine the Good Faith Estimate (GFE) for each lender. This document outlines the costs associated with your mortgage.
Research Special Programs
Inquire about special mortgage programs or incentives, such as FHA, VA, or USDA loans, if you qualify.
Read Online Reviews
Research lenders online and read reviews to gauge their reputation and customer service.
Consult a Mortgage Broker
Mortgage brokers can help you compare multiple loan offers from different lenders. They may have access to special deals and can save you time.
Consider Down Payment and Loan Term
The amount of your down payment and the length of your loan term can impact the interest rate. A larger down payment and shorter loan term often result in lower rates.
Evaluate Customer Service
Assess the lender’s responsiveness, communication, and overall customer service. A lender who is easy to work with can make the mortgage process smoother.
Get Preapproved
Once you’ve narrowed down your options, get preapproved for a mortgage. This can help you lock in a rate and show sellers you’re a serious buyer.
Remember that the cheapest mortgage isn’t just about the lowest interest rate. It’s also about the overall terms, fees, and the lender’s reputation. Carefully compare all aspects of the mortgage offers to make an informed decision.