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How to Use a Mortgage Calculator

Published November 11, 2020

5 minute read

Devon Taylor

By Devon Taylor

Buying a house can be complicated — especially if you’ve never done it before. You have to figure in a ton of different numbers. There’s the down payment, the mortgage term, the interest rate, the property taxes, and house insurance. And then there’s also potentially land transfer taxes, legal fees, appraisal fees, or inspection fees. If you’re not careful, you’ll find yourself financially overextended in a hurry. That’s not the way you want to start off after finally becoming a home owner. Don’t let your fantastic accomplishment turn into a nightmare. Use a mortgage calculator to crunch those numbers long before you start browsing online listings or showing up to open houses.

A mortgage calculator will give you a much clearer idea of how much you can afford to spend on a house. Depending on how simple or complicated the calculator is, you punch in some details and it will spit out results. These results include things like how much interest you’ll pay versus the principle, and over how long. For most of you, though, the most important number will be the monthly mortgage payment amount. If you know how much you can budget for that payment, you can get a better idea of which price range you should be house shopping in.

Types of Mortgage Calculators

Mortgage Affordability Calculator

You may be surprised to learn that there are actually multiple types of mortgage calculators. The best place to start, though, is probably a Mortgage Affordability Calculator. It will ask for a bunch of information (which you can usually input anonymously) — your gross annual income, planned down payment, your monthly expenses, and your currents debts and assets. It may also ask what type of mortgage you are seeking, in terms of amount, amortization period, and interest rate.

Once you have all the numbers, the calculator will give you a total amount. That number is the approximate amount that lenders will be willing to give you for a mortgage. While the exact amount will depend on other things too (like your credit score and debt ratios), this is a good place to start. If the mortgage calculator crunches your numbers and says you’re likely to be approved for a $500,000 mortgage, don’t keep looking at million-dollar properties.

Mortgage Payment Calculator

If you already know roughly how much you can spend on a house, proceed to a Mortgage Payment Calculator. You won’t need all of your personal financial details for this one. Simply use the loan amount, amortization period, and interest rate. The calculator will tell you exactly how much your mortgage payments will be. The real advantage of this type of calculator is the ability to make small changes. For example, do you want to make 12 monthly payments? What about 24 annual payments, on the 1st and 15th of every month? If you get paid weekly or bi-weekly, just adjust the calculator to show how much you’ll owe on every payday. It can make budgeting for a house much easier.

If you’re comparing interest rates (or planning to negotiate hard for a lower one), this calculator can show you the differences between them. Sure, signing a 2.79% mortgage might barely seem different from signing a 2.99% one. However, when the calculator shows you exactly how much you’ll save every payment (and over the term of the mortgage), suddenly every percentage change matters a bit more to your bottom line.

Mortgage Insurance Calculator

Mortgage insurance is an often-overlooked expense. Typically, you’ll be required to pay it if your down payment is less than 20% of the home purchase price. It’s often neatly bundled into your regular mortgage payments. However, not accounting for the extra expense could be the difference between ending every month in the red or the black. Make sure you use one if your down payment is less than 20% (and the way real estate prices are in most places these days, it probably will be).

When You Should Use a Mortgage Calculator

The obvious answer is “when you’re planning to buy a house,” right? Thanks, Captain Obvious. But it’s not exactly that black and white.

If you’ve already bought a house or two (or more) in the past, then perhaps you can skip using the calculators entirely. You probably know the process by now, and have a strong sense of what your payments will be based on the size of the mortgage you’re seeking. However, if the home buying experience is a brand new one, you should definitely start with a mortgage calculator.

Price Range

You might love ogling at multi-million dollar McMansion listings. However, spending a few minutes with an affordability calculator might reveal that your maximum borrowing amount is more like $500,000. If that’s the case, it’s time to re-adjust your buying expectations.

Regular Payments

Likewise, you probably know roughly how much you can afford to spend every month of housing costs. If you’re already paying rent somewhere, that’s a good number to start with. Even if you think you can swing paying a little bit more (especially for a place you actually own), you don’t want to overextend yourself. A mortgage payment calculator will help you understand exactly how much you’ll owe every month, based on the size of mortgage you seek. Hopefully you find numbers that are obtainable. Otherwise, it’s (once again) time to rethink your home buying strategies.

Paying Your Mortgage Off Early

Here’s a handy function that most mortgage calculators have. If you already have a mortgage, that’s great! Congratulations on being a home owner. You might think that you no longer have any use for a mortgage calculator. However, that might not be the case.

If you ever do the math on a mortgage, you’ll come to the somewhat depressing realization that you’ll likely pay just as much in interest as you do in principle — especially early in a mortgage. You can counteract this somewhat by making extra mortgage payments. Consider putting your tax return, annual bonus, or an unexpected inheritance directly against your mortgage. Most mortgages allow for this type of lump sum extra payments.

Use a mortgage calculator with this “Extra Payment” feature, and you’ll discover how much you can save by contributing a little bit extra. You might find yourself mortgage free a few years earlier than you originally thought. Or at the very least, you’ll save yourself some of those interest charges.

Getting Rid of Mortgage Insurance

If you had to start off with mortgage insurance because you didn’t have a 20% down payment, don’t fret. You’re not alone. However, you should also know that paying those insurance costs isn’t a permanent requirement. You can also use a mortgage calculator to determine exactly how much equity you have in your home. (A updated third-party appraisal doesn’t hurt either, if you’ve owned your home for a few years already.)

If you have more than 20% equity in your home, you can explore cancelling your mortgage insurance. It will save you a bit of money every year. Just make sure to contact your borrower about it — you don’t want to accidently break the contract or get yourself into legal (or financial) trouble as a result.

The Bottom Line

When you’re serious about buying a house, a mortgage calculator is the best place to start. Before the open houses or calling a bank about pre-approvals, sit down with your financial documents and spend some time with a calculator. The ones the banks use are virtually identical anyway. So you might as well educate yourself before you walk in and ask for hundreds of thousands of dollars.

Man Calculating Mortgage

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Devon Taylor

Managing Editor

Devon is an experienced writer and a father of three young children. He's simultaneously trying to build college funds and plan for an eventual retirement. He's been in online publishing since 2013 and has a degree from the University of Guelph. In his free time, he loves fanatically following the Blue Jays and Toronto FC, camping with his family, and playing video games.

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