Using a Mortgage Calculator to Save You Thousands
When deciding upon a home loan, or when thinking about refinancing, it’s good to be familiar with how a mortgage calculator works so that you can use this tool to your advantage.
By really seeing how your mortgage loan is amortized over a period of years and years, you can make better decisions about your down payment, your interest rate, and the points you pay at closing. By being familiar with how a mortgage calculator works, you can be better equipped when it’s time to decide on a lender and a loan.
Why Use a Mortgage Calculator?
To put it bluntly, not many people understand how an amortized loan works. They think that for a loan, the interest is calculated on the amount you’re borrowing and added as a lump sum, and then you pay off that one amount in small increments. However, when you use a mortgage calculator, you see that there’s really nothing much further from the truth.
Your interest is constantly being refigured for the remaining balance of your loan, every single month. It’s not just a lump sum that you pay on over time. When you use a mortgage calculator to see how much you actually wind up paying in interest over the life of your loan - sometimes the entire loan amount all over again, or even more than this - you really understand why it’s so important to fight for every reduction in that interest rate that you can get, even if it’s just a quarter of a percent.
How a Mortgage Calculator Can Help You
Let’s suppose your lender offers to reduce your mortgage interest rate by a quarter of a percent if you pay an additional point at closing. For those who don’t know, a point is 1% of your loan amount, or $1,000 for every $100,000 of your mortgage. You pay these points as fees to your lender when you close your mortgage.
When you run the offered percentage points through a mortgage calculator, you see that by reducing your mortgage loan interest rate by that quarter of a percent, you actually save a few thousand dollars over the life of your loan. You now understand that even though you need to come up with that extra $1,000 at your mortgage closing, it makes more financial sense when you think about how much you’re saving over the next 30 years.
By using a mortgage calculator in this way, you can make that decision; even though you don’t necessarily want to add that extra $1,000 to your closing costs, if you do have the money and can pay it, that would be better for you financially in the long run.
A mortgage calculator can also help you to see if refinancing is a good option for you. Because you need to pay so many fees and costs when you refinance - prepayment penalties, appraisal fees, loan origination fees, etc. - that mortgage calculator can tell you if refinancing will actually save you money in the long run.
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