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Finance

What is a Mortgage Interest Rate Calculator?

By Katharine Swan
Updated May 17, 2024
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A mortgage interest rate calculator is an excellent tool for determining whether you can afford a house. The user inputs the total loan amount, the interest rate, and the length of the loan, and the mortgage interest rate calculator figures out the likely monthly payment. This enables users to determine whether they can handle a particular home at current interest rates, or perhaps to get an idea before they start shopping of how much home they can afford.

The most common way of using a mortgage interest rate calculator is to estimate monthly payments, but this tool can be used for a variety of real-life applications. For instance, someone who is ready to start shopping for their first home may want to figure out how much their monthly payments will be for different loan amounts. By plugging a few different scenarios into a mortgage calculator, they can gather a lot of information that will help them determine what price range they should look in.

A mortgage interest rate calculator can also help you make other decisions about your finances. For example, if you plan to make additional payments toward the principle, you can enter that information into the calculator and see how much earlier you will be able to pay off your home loan. You can also change the loan term from the standard 30 years, and find out how getting a shorter loan term would affect your payments.

These days, many homebuyers are getting many different mortgage quotes before committing to any one lender. A mortgage interest rate calculator can therefore be an important tool to help a buyer choose between loans. For instance, one lender might offer a mortgage that has zero closing costs but a slightly higher interest rate. Plugging the numbers into a mortgage calculator shows you how much even a slight change in percentage can affect your monthly payments and the total paid over the lifetime of the loan.

For example, if a buyer is offered two different home loans on a property costing $165,000 US Dollars (USD), one with a 6 percent interest rate and the other with a 7 percent interest rate, the difference between monthly payments is more than $100 USD — $989 USD a month as opposed to $1,097 USD a month. A 1 percent gap is even wider on a more expensive property: For instance, a mortgage of $365,000 USD with a 6 percent interest rate generates monthly payments of $2,188 USD per month, while a 7 percent interest rate on the same loan brings the payments up to $2,428 USD a month.

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