A mortgage calculator is a tool that allows every individual to ascertain the financial implications in one or more variables in a mortgage financing deal. The important variables in a mortgage calculator comprise of loan principal balance, periodic interest rate, compound interest, number of payments per year, total number of payment and the regular payment amount.
Mortgage calculators are used to help a real estate owner to determine how much can be afforded to borrow in order to purchase a real estate.
They can be used to evaluate the costs or real interest rates between different loans, the effect on the length of the mortgage loan to pay plus principal payments or bi-weekly payments instead of monthly payments.
The monthly payment for a fixed rate mortgage can be given as the amount paid by the borrower every month guarantying that the loan is repaid in full along with the interest at the end of the predetermined term. The monthly payment depends upon the monthly interest rate, the number of monthly payments and the amount borrowed.
Monthly payment = (interest rate /1-(1+interest rate) power –n)* principal
A home loan for $100,000 with a fixed interest of 6.5% for a period of 30 years monthly payment is
$100,000(6.5/100/12 / (1 – (1 + 6.5/1200) ^-(30*12)) = $632
This monthly payment is quite easy to derive. The derivation involves amount owed every month equals the amount owed from the previous month plus the interest on this amount minus the fixed amount paid very month.
The total interest that will be paid over the duration of the loan is difference between the total payment and the loan principal:
I = cN – P
Where I = interest
cN total payment amount
P = loan principal
C fixed monthly payment
N number of payment