Mortgage Amortization Calculator
From LoveToKnow Mortgage
Mortgage amortization calculators are available by the dozens on the Internet, but without understanding what they do, you cannot effectively get the most benefit from one.
Mortgage Amortization Calculator Benefits
As you pay down the balance due on your mortgage, you are actually amortizing your loan, or reducing the outstanding principal balance. As the balance goes down, your equity in your home is apt to go up. By periodically referring to a mortgage amortization calculator, you can check the estimated balance due on your loan against the market value of the property. The difference is your equity, and often equity can be converted into cash through a second mortgage or refinancing for more than the balance due on your existing mortgage.
Of course, you can call your lender and find out the principal balance, but who wants to be put on hold or wait until business hours when it is three in the morning and you are looking for answers to your financial worries? You may also want to see how it will impact your long-term financial picture to pay the lender more often, like bi-monthly, to make an extra payment once a year, or to pay more than the minimum amount due on a monthly basis.
Calculators are also useful if you are just purchasing a home. You can get a quick idea of what your payment would be, based on the term of the mortgage and the interest rate.
Amortization Calculation Basics
A word of caution, it is likely your actual mortgage payment will also include an amount for escrow (property taxes and insurance premiums). The calculator will only look at your likely principal and interest components.
To use a calculator, you will need to know the following:
- Length of the mortgage term
- Interest rate
- Starting date
- Loan amount
- If your loan comes with a balloon payment due, the amount of this payment
Many mortgage amortization calculators, like the one at E-Loan, will also let you experiment with paying extra toward the principal balance on a monthly or annual basis to see how that affects the total amount of interest you will pay over the life of the mortgage. For example, if you borrow $100,000 for 15 years at seven percent interest, you would pay $61,789 in interest over the life of the mortgage. However, if you included an extra $100 a month to your mortgage payment, you would only pay $47,908 in interest over the same 15-year period. That is a savings of $13,881.
Keep in mind as well that an amortization calculator works best when looking at a fixed rate mortgage, since Adjustable Rate Mortgages (ARM) are subject to fluctuating interest rates. If the terms of your mortgage contract states caps or how often the lender can adjust your interest rate, you can still use a calculator to get a short-term look at how your mortgage payment will be allocated, but for long term, you can only calculate potential highs and lows. In this case, it is often better to discuss your financial picture with your lender.
Free Online Calculators
There are dozens of Online Mortgage Calculators. Here are but a few that may meet your needs:
In Conclusion
A mortgage amortization calculator can show you the big picture broken down in understandable chunks. This can help you manage your finances and decide the best way to handle your housing debt during those times when a professional is not available or you are not ready to share your financial information with Mortgage Lenders. Let the technology behind these calculators save you the time that could be better spent elsewhere while providing you with the error-free numbers you need.
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