Why Use a Mortgage Payment Calculator?
Like so many other tools that you have at your disposal - a treadmill, a waffle iron, a jigsaw - a mortgage payment calculator will only be beneficial if you use it, and use it properly. Yes, there is a right way and wrong way to use it, and let’s explore that a bit further.
Many people figure a potential mortgage by simply taking the cost of a home, adding a certain amount for interest, and then dividing that total number by 360, or 30 years of payments. They think this will be their new monthly mortgage. However, when you run those same figures through a mortgage payment calculator, you find out that you were way off! How can that be?
There are just a few reasons for this. One, typically when you have a mortgage, you need to pay your property taxes, private mortgage insurance, and homeowner’s insurance at the same time; your bank or lender will not allow you to pay these things separately. They may be put into an escrow account and held until they’re due to that other insurance company or for when the government actually prepares a tax bill, but they must be added to your mortgage payment amount. A mortgage payment calculator will usually figure in these numbers for you, using an approximate amount. Even a relatively affordable mortgage will still be increased by a hundred or even several hundred dollars when you add these other figures. If you’re looking at that mortgage payment that you had figured and thought that this was the maximum amount you could afford, using a mortgage payment calculator that adds in these other fees can be a real eye opener. Suddenly you realize you need to be more modest with your choice of homes, or should think about coming up with more of a down payment to reduce your principal loan amount. Using this mortgage payment calculator up front saves you a lot of surprises down the road.
Also, remember that your mortgage loan is amortized, which means that your interest is not figured as a lump sum and added to the principal. It is figured every pay period, or every month. Many people are surprised when they use a mortgage payment calculator and see how much they actually need to pay in interest, not just every month, but over the life of the loan. This too can be a great incentive to be modest about the amount of home you assume you can afford, and can also be a great motivator to wait another six months or so in order to build up a sizeable down payment.
Mortgage payment calculators are provided as a handy tool for anyone considering a mortgage to really understand their options and what will be expected of them financially. But again, like with any other tool, a mortgage payment calculator will only help you if you actually take the time to use it, and use it properly.
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