Home loans are also called mortgages, bonds, or mortgage bonds. What distinguishes home loans from other loans is the repayment period, which is typically a minimum of 20 years. Before applying for a home loan, it’s a good idea to play around with one of the many home loan calculators online. Although your loan application will still need to be vetted, a mortgage calculator will provide an idea of what amount you as a prospective home buyer can loan from the bank, depending on your financial circumstances and what you can afford to repay.
What to Know About Home Loan Calculators
What is a Mortgage Calculator?
A home loan calculator is an automated online tool that enables borrowers to calculate various hypothetical loan repayments and identify the monthly interest calculation. Some might even calculate the total amount of interest payable on a bond over the twenty-year period. However, this will be subject to fluctuations in the interest rate.
Right now it is still cheap to take out a mortgage loan. Nonetheless, with inflation on the rise, all signs point to interest rates increasing. A monthly mortgage payment calculator will help to determine the impact of different interest rates on monthly repayments.
Many banks offer online mortgage calculators, which they also use when processing loan applications. This calculator should include factoring in the borrower’s loan affordability. If they don’t have a calculator, search for a free online mortgage calculator from other banks.
How Home Loan Calculators Work
Mortgage calculators work by inputting several factors into the calculator which then performs a preprogrammed calculation. The factors include a number of variables such as:
- Loan principal (upfront capital)
- Deposit
- Repayment period
- Outstanding balance
- Interest rate (compounded and periodic)
- Payments per year (and options)
- Regular repayment amount
Some mortgage calculators found online also have the ability to factor in mandatory insurance as well as state and local taxes.
Calculating Affordability
Financial institutions use calculators to compare a potential borrower’s monthly income with their total monthly debt obligations (debt/income ratio). These will have to be acknowledged in writing before final approval on a mortgage.
These calculations will determine the borrower’s affordability status, their ability to make the monthly repayment, as well as the obligatory costs such as homeownership dues, property taxes, and home insurance.
As a rule, banks would prefer that total monthly debt commitments, including property, do not exceed approximately 40% of pre-tax income. Less conservative lenders would prefer monthly debt not to exceed up to 55%.
Home Loan Interest Rates
As with most home loans, there is the option to commit to a fixed rate of interest or allow the interest rate to fluctuate. Financial institutions will usually only encourage borrowers to fix the interest when they think the interest rate is due to go down. That way they can lock borrowers into a more profitable rate of interest for themselves to benefit from. Ask upfront if the interest rate can be fixed or unfixed at any future time.
Helpful Resource: Home Mortgage Calculator
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Graves Development Resources (GDR) has been designing and building the market’s finest neighborhoods since 2000, with over 5,000 homesites and important commercial development projects throughout Douglas and Sarpy Counties.
Our pages showcase current neighborhoods where new home buyers may select from hundreds of home sites. We are definitely “phone friendly” and welcome the opportunity to provide you with all the information you need before making one of the most important decisions of your family’s future. Contact us with any questions.