Understanding How Purchase Mortgage Payment Calculators Work

Learn how to use a mortgage payment calculator to determine your total monthly mortgage payment

There are thousands of purchase loan mortgage payment calculators on-line, but only a few give home buyers a true picture of their mortgage and housing payments.

There are two types of mortgage payments: interest only and fully amortizing.

Interest only loans are relatively straightforward. You pay interest on the outstanding principal balance each month. For example:

Loan Amount:	$200,000
Interest Rate	6%
Annual Interest:	$200,000 x 6% = $12,000
Monthly Payment	$12,000 / 12 = $1000 per month

In an interest only loan, the minimum monthly payment is equal to the interest due each month. Most home equity lines of credit are set up this way. At some point, the period of interest-only payments ends and if the borrower still has the loan then the remaining principal is paid off as an amortizing loan over a specified term.

Calculating mortgage amortization can be confusing if done manually. Fortunately, there are on-line mortgage calculators to help. The actual formula for calculating a monthly amortizing mortgage payment is:

In this equation:

• P = Principal amount of the loan
• R = interest Rate divided by 12
• N = Number of payments
• A = the monthly payment.

So if in the example above the mortgage is fully amortizing instead of interest-only, then instead of a payment of $1,000 per month the borrower would repay $1,200 per month using this formula.

Many home buyers' eyes glaze over when they hear the word amortization, but most people grasp the basic concept. Amortization is simply a schedule that determines how a payment will be divided between interest and principal. The first payments of a mortgage are nearly all interest and very little principal is being paid off. Conversely, at the end of a mortgage amortization schedule, the payments are nearly all principal.

For the first payment in the above example, only $199.10 of the $1,200 payment is principal and the rest is interest. At payment 222, the payment is evenly divided between interest and principal. By payment 325, the payments are over $1,000 principal.

This front-loaded mortgage interest repayment schedule works in a lender's favor (of course) . It means that if you move a lot you are actually losing money because you are paying for interest to borrow money for 30 years but only using the money for a few years.

Purchase loan calculators should also help you take into account monthly housing costs in addition to your mortgage. Your total monthly housing costs include:

• Mortgage Payment
• +Property Taxes
• +Home owners insurance
• +Association Dues (if any)
• +Flood Insurance (if any)
• +Mortgage Insurance (if any)
• Your Total Monthly Housing Cost

When considering whether you can afford to buy and own a home, mortgage lenders take all of these costs into account. Home buyers also need to take into account home repair expenses along with the normal costs of maintaining a home.

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If you want a mortgage payment calculator that takes all of your housing costs into account and also has exact current mortgage rates, consider downloading the Total Mortgage Purchase Loan Widget from Yahoo or Total's Google Gadget. You can also download a version to use on your web site. For details, click here (LINK TO Widget page).

For a free mortgage pre-approval and an exact rate quote to help you purchase your next home, please email us or call us at 1-877-868-2503.

To see the current mortgage rates, visit our Current Mortgage Rates page.

If you have any questions that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503.

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